ITA No. 135/JP/2012

SHRI T.R.MEENA, AM & SHRI LALIET KUMAR, JM

Shri Mahendra Gargieya (Adv) For The Assessee :
Shri O.P. Bhateja (Addl.CIT) For The Revenue :

ORDER

T.R. MEENA, A.M.-This is an appeal filed by the assessee against the order dated 30/12/2011 of the learned C.I.T.(A)-II Jaipur for A.Y. 2008-09. The respective grounds of appeal are as under:-

1. The impugned additions and disallowances made in the order U/s 143(3) of the Act dated 10/12/2010 are bad in law and on facts of the case, for want of jurisdiction and various other reasons and hence the same kindly be deleted.

2. Rs. 38,30,114/-: The ld CIT(A) erred in law as well as on the facts of the case in confirming the disallowances of the deduction of Rs. 38,30,114/-claimed U/s 54 of the Act. The disallowances so made by the A.O. and confirmed by the ld CIT(A), are contrary to the provisions of law and facts of the case. Hence, the appellant kindly be entitled to the deduction as claimed.

3. The ld. A.O. further erred in law as well as on the facts of the case in charging interest U/s 234A & 234B of the Act. The appellant totally denies its liability of charging of any such interest. The interest so charged, being contrary to the provisions of law and facts, kindly be deleted in full.”

2. Ground No. 1 of the assessee’s appeal is not pressed, therefore, the same is dismissed as not pressed.

3. Ground No. 2 of the appeal is against confirming the addition of Rs. 38,30,114/- by not allowing the deduction U/s 54 of the Income Tax Act, 1961 (in short the Act) by the ld CIT(A). The assessee is a Director of M/s Oriental Autotech Pvt. Ltd. and M/s Oriental Earthmovers Pvt. Ltd. from where she had shown to have received remuneration. The assessee had also shown interest income from banks and on loans advanced to private parties. The assessee had also declared income of Rs. 18,736/- U/s 44AF of the Act. The assessee had filed her return for A.Y. 2008-09 on 31/3/2009 declaring total income of Rs. 5,91,910/-, which was subsequently revised on 31/3/2010 declaring total income of Rs. 5,66,910/-. The case was scrutinized U/s 143(3) of the Act. The assessee did not file the return in terms of provisions of Section 139(1) and therefore revised return filed by her cannot be accepted by the Assessing Officer. Further, the ld Assessing Officer observed that in the original return the assessee had not shown the income from capital gain earned on sale of property the assessee had also not claimed the interest paid by her amounting to Rs. 42,000/- against interest income of Rs. 1,77,691/- as against shown at Rs. 1,59,291/- in the original return. The assessee had also not shown the income under the head long term capital gain in her original return of income, which had been claimed as exempt U/s 54/54EC of the Act. The assessee had also not mentioned any details in respect of sale of immovable properties in the original return of income. In the revised return of income, she had shown to have sold two flats for Rs. 22,38,000/- and Rs. 19,51,000/- totaling Rs. 41,89,000/-. The assessee had shown the cost of acquisition at Rs. 3,58,886/- and resultantly, long term capital gain was shown at Rs. 38,30,114/-. This income had been claimed exempt in terms of provisions of Section 54 by way of investment of Rs. 12,22,900/- in purchase of house property and an amount of Rs. 30.00 lacs were deposited in capital gain account scheme. The ld Assessing Officer gave reasonable opportunity of being heard on this issue. It was found that the assessee owned three adjoining lands and for construction of flats thereon entered into an agreement with a developer and during the year under consideration has sold two flats out of her share. The total cost of the lands was Rs. 10,97,594/- which after applying index was worked out at Rs. 14,81,910/-. On being apportioned on the basis of area of land incorporated in the flats sold during the year, cost of land was worked at Rs. 3,89,853/-. The sale considerations of flats sold was Rs. 22,38,000/- (sold on 20/10/2007) and Rs. 19,51,000/- (sold on 15/03/2008), in total sale consideration was Rs. 41,89,000/-. The long term capital gain had been worked out at Rs. 37,99,147/-. The assessee had claimed deduction U/s 54 of the Act as under:-

The ld Assessing Officer further reproduced Section 54 of the Act on page No. 3 of the assessment order. He further observed that residential house 64/108, Pratap Nagar, Jaipur was originally allotted to the mother in law of the assessee Smt. Krishna Beniwal by the Rajasthan Housing Board on 15/05/2006. Smt. Krishna Beniwal and the assessee took a housing loan from Bank of Rajasthan and made payments of Rs.  10,90,726/- out of the bank loan. The date wise payment to Rajasthan Housing Board is shown as under:-

Another letter was issued by Rajasthan Housing Board on 07/11/2006 stating that Smt. Krishna Beniwal has deposited the full amount and also stating that she must take possession of the house till 14/12/2006. The office order of Rajasthan Housing Board dated 31/5/2007 states that after allotment of house No. 64/108 Pratap Nagar, Jaipur to Smt.  Krishna Beniwal her daughter in law Smt. Seema Singh Beniwal has applied for adding her name in the allotment of the said house which has been accepted. Other payments for the allotment of said house were made even prior to the issuance of allotment letter on 15/05/2006.  The ld Assessing Officer further observed that the language of the office order dated 31/5/2007 suggested that the assessee had applied just prior to issuing of the possession letter which indicates that the assessee got her name added alongwith Smt. Krishna Beniwal, mother in law of the assessee with a simple motive to be eligible for claiming deduction U/s 54 endorsing a Hindi proverb “Heeng Lage Na Phitkari Rang Chokha”. The entire payment was made before the date on which the assessee became co-owner of the said property and not out of the sale proceeds but out of the loan taken from the bank of Rajasthan. Besides, the last payment for the allotment of the said house was made on 15/04/2006 as evident from the table given above, which was approximately 17 months prior to the date on which the first flat was sold on 20/10/2007. He further observed that the assessee had also claimed the expenses of Rs. 65,000/- on finishing and construction of said house. The bill submitted by the assessee before the Assessing Officer was on plain paper. On verification by the ld Assessing Officer, it was found that the house purchased from Rajasthan Housing Board was skeleton in which it was allotted as was envisaged by comparing the othr houses which existed there. The house allotted by the Rajasthan Housing Board was not a finished house and was in such a condition which could not be called a dwelling unit. Therefore, the assessee’s claim was found by the Assessing Officer as bogus. The ld Assessing Officer again gave reasonable opportunity of being heard to the assessee on various points raised during the assessment proceedings, which was explained by the assessee on 09/12/2010. The assessee’s reply has been reproduced by the Assessing Officer at page 4 and 5 of the assessment order. After considering the assessee’s reply, the ld Assessing Officer held that the assessee is not entitled for deduction U/s 54F of the Act on house purchased at house No. 64/108, Pratap Nagar, Jaipur for Rs. 12,22,9000/-.

2.1 The ld Assessing Officer further observed that second deduction U/s 54 was claimed against the purchase of plot of land at C-114, Hanuman Nagar, Jaipur for a sum of Rs. 28 lacs on 25/01/2010. The assessee had deposited a sum of Rs. 30 lacs in capital gain account scheme with State Bank of India and this plot was purchased out of this capital gain account deposit. The assessee further claimed to have invested a sum of Rs. 1,10,250/- on above plot for construction of garage portion. The size of the plot is 50’x70’ giving area of the total plot is 3500 sq ft or 388 sq. yards while the size of the constructed portion is 10’x20’ area of constructed portion is merely 201 sq.ft. or 23.33 sq. yards as stated by the assessee. This showed that the constructed area was only 6% of the total size of the plot. As per the Assessing Officer, a residential house must consists a proper drawing room, dining room, bed rooms, living room, kitchen, bathroom, toilet etc. It should also have proper doors, windows etc. This becomes essential considering the size of the plot, post locality, financial condition of the assessee. The field inquiry was also got conducted at the site which revealed that the claimed construction work carried out by the assessee on the above plot was simply a room constructed in a corner of the plot which was locked. The area of construction was also hardly 125-150 sq.ft and was having only a section window which suggested that it was only a room without toilet, kitchen as claimed by the assessee as per the enquiry report. This room could solve the purpose of store room or hardly, at the most of a servant quarter but at all not the purpose of a residential house by any means. It was also noticed that the entire plot was having only loose sand not making any easy approach to the tiny room built in the corner. It was gathered from the people residing in the nearby area that no one was residing in the room and only a watchman comes seldom there for taking care of the said plot. Therefore, the construction carried out by the assessee was simply an attempt to defeat/misuse the provisions of Section 54 of the Act.  Therefore, he held that claim of the assessee in respect of Hanuman Nagar, Jaipur property U/s 54F is not liable to be allowed. The ld Assessing Officer again had given reasonable opportunity of being heard and case was fixed for 09/12/2010 and the assessee submitted that Rs.  30 lacs was deposited in capital gain account on 29/07/2008 in capital gain tax account No. 30427064659 in State Bank of India, Hatwara Road Branch, Jaipur as per provisions of Section 54 of the Act. The payment for purchase of land for Rs. 29,37,200/- was made on 25th January, 2010, Rs. 28,00,000/- were paid from the capital gain tax account. The assessee had also paid Rs. 1,10,250/- against construction of the residential unit on the said land to the contractor. Construction of residential unit has been completed on 15/3/2010. The assessee fulfilled the said conditions envisaged in Section 54F for deduction as the assessee has completed the construction with three years from the date of sale. The ld Assessing Officer observed that the assessee’s claim was not found eligible U/s 54F on the ground that the assessee had purchased land and constructed a small room on it. The ld Assessing Officer has not considered this investment as residential house. He further relied on the decision of the Hon’ble Jurisdictional High Court in the case of Rajesh Surana Vs. CIT 306 ITR 368 wherein the Hon’ble High Court has very emphatically given the definition of residential house and has shade light on the intention of the legislature for providing exemption for purchase of residential house. The relevant portion of the Hon’ble High Court’s verdict has been reproduced by the Assessing Officer on page 8 of the assessment order and held that one room constructed by the assessee on the open land cannot be called a residential house. Accordingly the ld Assessing Officer rejected the deduction U/s 54F of the Act on second house and made total addition of Rs. 38,30,114/- under the head income from long term capital gain.

3. Being aggrieved by the order of the ld Assessing Officer, the assessee carried the matter before the ld CIT(A), who had confirmed the addition by observing that the assessee can claim deduction U/s 54 of the Act only in respect of one house and that too after fulfilling the necessary conditions. Whereas the assessee has claimed deduction U/s 54 in respect of two properties. The first property was at 64/108, Pratap Nagar, Jaipur and second property was at C-114, Hanuman Nagar, Jaipur. He further relied on the decision of Special Bench of Mumbai in thecase of ITO Vs. Sushila M Jhaveri 292 ITR AT 001 and held that considering this decision, the claim of the appellant is liable to be restricted to the investment in one house only. He further held that residential house at 64/108 Pratap Nagar, Jaipur was initially allotted in the name of Smt. Krishna Beniwal by the Rajasthan Housing Board. She had made payments of Rs. 10,90,726/- in four installments out of loan obtained from the Bank of Rajasthan by 15/04/2006. The name of the appellant was added in the application for taking loan just to increase the amount of loan which could be available to Smt. Krishna Beniwal.  However, it was not repudiated that the entire payments of Rajasthan Housing Board had been made by Smt. Krishna Beniwal by 15/04/2006.  The appellant had sold her first flat on 20/10/2007 and second flat on 15/03/2008. Thus even if the date of sale of first flat was taken into consideration, the entire payment for purchase of house had been made by 15/04/2006 Since complete payments had been made by Smt.  Krishna Beniwal 17 months prior to the date of sale of first flat, the appellant by all means would fail to satisfy the condition of making payment within one year prior to the sale. The series of events do show that the appellant tried to add her name as a joint owner just for claiming deduction U/s 54. The initial allotment letter issued by Rajasthan Housing Board on 15/05/2006 in the name of Smt. Krishna Beniwal only, which was applied by her in residential scheme Kalp Taru Yojana in the year 1992. The name of the appellant was added as a joint owner only by the order of Rajasthan Housing Board dated 31/5/2007. Even the letter of resident engineer dated 07/11/2006 for handing over the possession of the house mentioned the name of Smt.  Krishna Beniwal only. These series of events do showed that the appellant had got her name added as a joint owner only for claiming deduction U/s 54. The lease deed was also executed on 23/06/2007 and the same of the appellant was then added as a joint owner. He further held that without prejudice to the above finding, since the entire investment was made out of loans borrowed from bank, the appellant in any way was not entitled to deduction U/s 54 in view of decisions of Hon’ble Mumbai Tribunal in the case of Milan Sharad Ruparel Vs. ACIT 121 TTJ 770. Further it has been held that the claim of expenditure of Rs. 65,000/- on the finishing of this house was also not substantiated with the proper bills/supporting. The appellant had submitted some plain sheets of paper wherein certain narration was given and it did not constitute proper evidence in the eyes of law. The entire expenditure was incurred in cash and no cognizance could be accorded to the claim of the appellant. The field inquiries made by the Assessing Officer revealed that the house was in the same skeleton as it was allotted by the Rajasthan Housing Board. Accordingly he held that the assessee is not entitled for deduction U/s 54 of the Act in respect of the first property.

3.1 He further observed that second exemption U/s 54 of the Act was claimed on C-114, Hanuman Nagar, Jaipur. He basically relied upon the findings of the Assessing Officer that structure on plot was very small size where watchman can stay and occupied only 6% of total area of plot. This construction is not habitable in absence of living room, bed room, kitchen, bathroom or toilet. The field enquiries conducted by the Assessing Officer showed that it was never used for residential purpose by the assessee. The ld CIT(A) also remanded this issue to the Assessing Officer but the assessee did not cooperate with the Assessing Officer, which shows that the assessee did not have any clinching evidence for construction of house on plot No. C-114, Hanuman Nagar, Jaipur. The predominant intention of the nature of construction can be the decisive factor, as to whether it is a residential building, as contradistinguished from a commercial building or any industrial building. But then every residential building would not be residential house, though every residential house has to be a residential building.  He further relied on the decision in the case of Rajesh Surana Vs. CIT (supra). The appellant had also failed to demarcate the living room, kitchen or toilet in the alleged structure at C-114, Hanuman Nagar, jaipur. As far as furnishing of documentary evidence in the form of photographs is concerned, he relied on the decision of Hon’ble Supreme Court in the caseof Director of Income Tax Vs. Bharat Diamond Bourse (259 ITR 280) and evidence filed in form of photographs were rejected by the ld CIT(A). There is no evidence that the appellant had used the said structure as her residence at any point of time for which he relied on the decision in the case of Sunita Oberoi Vs. ITO 126 TTJ 745. He further held that the assessee did not put sufficient material on record and had not demonstrated that house was used as residence of the assessee for which he relied on the decision of Hon’ble Delhi High Court in the case of D.P. Mehta Vs. CIT 251 ITR 529, Hon’ble Punjab & Haryana High Court decision in the case of Dr. A.S. Atwal Vs. CIT 277 ITR 462 and Pawan Kumar Garg Vs. CIT 311 ITR 397. Finally he confirmed the order of the Assessing Officer and not allowed the deduction U/s 54 of the Act.

4. Now the assessee is in appeal before us. The ld AR of the assessee has reiterated the arguments made before the ld CIT(A) and claimed that the assessee applied for including her name to the Rajasthan Housing Board. Through the office order dated 31.05.2007, allotment was shown in the name of the assessee also as a joint owner.  The perpetual lease deed between the Rajasthan Housing Board and the joint owners i.e. the assessee and Smt. Krishna Beniwal was executed on 23.06.2007, which is within one year before the date of sale. No doubt initially Smt. Krishna Beniwal was the applicant allotee but then it was a case of purchase made by the assessee, who subsequently stepped into the shoes of Krishna Beniwal. Since it was not a case of formal sale from Krishna Beniwal to assessee, there being no price difference, there was no capital gain tax liability in the hands of Krishna Beniwal. Transfer of new property took place when Perpetual Lease Deed executed in assessee‘s favour as per 2(47) of the Act and Transfer of Property Act. The total cost of Rs. 10,90,726/-, except the initial deposit of Rs. 1,10,000/- by Smt. Krishna Beniwal however, almost entire cost was paid by the assessee only. All the installments were paid from the saving bank account of the assessee as evident from different entries shown in the pass book. Hence the fact of payment out of the loan is not relevant. Thus, virtually it was the assessee who purchased the house. Smt. Krishna Beniwal was running short of funds and for that reason she tried to avail a bank loan however, she was not found eligible to get loan as desired and therefore, the name of the assessee was added as a co-borrower. A Memorandum of Understanding (MOU) was reached on dated 30.06.2005 between Smt. Krishna Beniwal and the assessee that the later shall be making payments of the installments payable to the Rajasthan Housing Board or to the bank towards the repayment of the loans but to safeguard her interest, her name shall be included as a joint owner in the records of the RHB. However, it was also agreed between the parties that in case the borrower Smt. Krishna Beniwal fails to make the repayment up to dated 31st October, 2006, the lender i.e. the assessee shall be entitled to get her name included in the record of Rajasthan Housing Board and shall become the owner of the property or in other words, the house will become the property of the assessee. Unfortunately, later when Smt. Krishna Beniwal, was unable to make payment even upto 31.03.2007, as per clause 4, the assessee got the lease deed registered in her name. Thus, virtually, initially it was a case of giving loan however, later when the borrower failed the assessee got her name included in Rajasthan Housing Board record and by virtue of understanding became the owner after 31.03.2007 and this way purchased the property within one year from the date of the sale.  The new house thus, was transferred in assessee‘s name on 23.06.2007 which is in a year of sale. Therefore, the ld CIT(A)’s observation that original purchaser of flat of Rajasthan Housing Board and the Krishna Beniwal made the payment by 15.04.2006 i.e. 17 months prior, is legally and factually wrong. The law u/s 54 requires to purchase a new house and since legally speaking, the purchase took place within one year only, the assessee was confident of getting the claim. The objection made by the Assessing Officer that the payment of house was made out of loan and not out of the sale consideration, is a misconception because the fact of payment out of the loan is not relevant. Moreover, it is impossibility because complete payments were already made by 15.04.2006 whereas the flats were sold on 15.03.2008 and the law permits one year backward. This aspect has not been considered in the case of Milan sharad Ruparel cited by the CIT(A) hence the same is not applicable. On the contrary, he referred the decision in the case of ITO vs. K.C Gopalan (2000) 162 CTR 566 (Ker) wherein the Hon’ble Kerala High Court has held that, law does not insist U/s 54 that sale consideration obtained by assessee itself should be utilized for purchase or construction of new house property. The construction expenses were duly supported by the bill dated 31.7.2007 raised by the contractor bearing complete name, address and signature of the contractor which prima facie proved the cost incurred and it was for the AO to bring contrary material by making inquiries or otherwise.  Appearance of name of Smt. Krishna Beniwal in loan and Rajasthan Housing Board papers is normal as she is the first named registered person. In the possession letter of Rajasthan Housing Board nowhere says it’s a Skeleton house. The photographs clearly show it is a complete residential house. Therefore, he prayed to allow the deduction U/s 54 of the Act on Pratap Nagar house.

4.1 The ld AR further argued that the assessee purchased a plot at C-114, Hanuman Nagar, Jaipur on 25/1/2010 measuring 50’ X 70’ = 3500 sq. ft. or 388 yards on which a construction of room measuring 10’ 20’ = 200 sq. ft. or 23.33 yards was made thereon. The observation made by the ld Assessing Officer as well as by the ld CIT(A) that room constructed in the plot was not habitable. The findings of both the authorities are baseless and nothing more than suspicions. The ld CIT(A) was not right in holding that there is no facility in that room like bathroom, toilet etc. as the ld Assessing Officer had not made any comment in the remand report. The room was having a section window and a door. The photographs submitted during the course of appellate proceedings clearly suggest that in the front side, there is a door and window clearly visible. The window is covered by mosquito nets. The window and doors are made up of iron sections for providing sufficient safety to the inhabitant/occupant of the room. It can also be verified from the photographs that the assessee got constructed toilet and kitchen. An electric connection at the front and, inside the room switches are there. Thus, it was a complete residential unit itself having all the basic facilities/amenities which required for human habitation.  The construction was completed by 15.03.2010. The ld CIT(A), further was held wrong that this room can only be used by servant or as a godown only. By own admission of Revenue, the construction was habitable even if it was capable of housing a servant. In other words, it was habitable for a human being be it a servant/master/any other employee for that reason. The ld AR further argued that in Haryana, as per the building by laws, even if 10% of the total plot size is constructed in the specified period, the authorities will not cancel the allotment.  Thus the construction only on 10% part, can be meet with the requirement of constructing a residence. During the course of the appellate proceedings the ld. CIT(A) had admitted additional evidences which were forwarded to the AO, but there is no whisper on this evidences by the A.O. for word “residential house” or the word “house”.  He relied on the decision in the case of Shiv Narain Chaudhari vs.  Commissioner of Wealth Tax (1977) 108 ITR 104 (All), wherein it has been held that building for human habitation, especially a dwelling place has considered as house. In the case of ACIT vs. Narendra Mohan Uniyal (2009) 34 SOT 152 (Del) wherein it has been held that when the land is purchased and building is constructed thereon, it is not necessary that such construction should be on the entire plot of land. In the case of Prem Prakash Bhutani v/s ACIT (2007) 110 TTJ 440 (Del) wherein it has been held that it is nothing in the law to construct the building in a particular manner. The only requirement is that it should be for the residential use as contrasted with commercial use. It is no longer the requirement that the assessee should reside in the house. Further he relied on the decision in the case of B.B. Sarkar vs. CIT, West Bengal-IV (1981) 132 ITR 150 (Cal) wherein the Hon’ble High Court has held that the main purpose of the statute is to give relief for the acquisition of a new residential house whether it is partly constructed or partly purchased. In the case of CIT & Anr. vs. Dr. R. Balaji (2014) 111 DTR 288 (Kar) wherein it has been held that deduction U/s 54F could not be denied on the ground that property was not suitable for residence of assessee. He has further drawn our attention on CBDT Circular No.667 dated 18.10.1993 wherein it has been clarified by the Board that cost of land is a integral part of the cost of the new house purchased/constructed. The CIT (A) has made out completely a new case by invoking the controversy of “a/one” u/s 54F which was not at all case made out by the AO originally. This amounts to enhancement of income without giving any notice which is not permissible hence this aspect should be ignored. In Section 54 and Section 54F, there was never intended to be interpreted as one or single residential house. He further relied on the decision in the case of CIT vs. Khoobchand Makhija (2014) 223 TAXMAN 0189 (Karnataka) wherein it was held that a “residential house” is used in section 54 makes it clear that it was not intention of legislature to convey the meaning that it refers to a single residential house. Letter “a” in context, which is used, should not be construed as meaning singular, but being a indefinite article. “A residential house” also permits use of plural by virtue of section 13(2) of General Clauses Act, therefore acquisition of two residential houses by assessee out of capital gains falls within phrase “residential house”. In the case of CIT vs Smt. K.G. Rukminiamma (2011) 331 ITR 211 (Kar.) wherein the Hon’ble High Court has held that “a residential house” used in s. 54 should be understood in a sense that the building should be of residential nature and “a” should not be understood to indicate a singular number; assessee was entitled to claim exemption under s. 54 in respect of four residential flats acquired by her.” He also relied on the decision in the case of CIT & Anr. Vs. D Anand Basappa. (2009) 309 ITR 329 (Kar). He further argued that from A.Y. 2015-16, an amendment has been made wherein word “a” has been replaced by the word “one”, however this amendment has made effective from AY 2015-16 onwards. The amendment is substantive and not being clarificatory, therefore cannot be applied retrospectively for which he relied on the decision in the case of ITO v/s Ekta Promoters (P) Ltd. (2008) 117 TTJ 0289/ 10 DTR 0563 (SB) (Del), Virtual Soft Systems Ltd. vs. CIT (2007) 207 CTR 733 / (2007) 289 ITR 0083 (SC). He further argued that the ld CIT(A)was not justified by relying on the decision in Sushila M Jhaveri (supra)and held that as per this case, ruling ‘a’ has meaning only wherein the assessee sold half portion of the property and purchased two different residential properties located distinctly whereas in assessee’s case the assessee sold two flats and acquired two properties, therefore, the case laws relied by him is not applicable on the facts of the present case. Similarly the case law relied by the ld CIT(A) i.e.  Rajesh Surana v/s CIT (supra) is also not squarely applicable as the Hon’ble High Court noted in the order itself that there is no kitchen, toilet in that house and the testator himself mentioned the property to be a garage cum room but not a residential house. The property sold which must be a residential house the income of which should necessarily be chargeable under the head “Income from House Property”. All other cases cited by the CIT(A), are also completely distinguishable, therefore, he prayed to reverse the order of the ld CIT(A) and allowed deduction U/s 54F of the Act.

5. At the outset, the ld Sr. DR has vehemently supported the order of the ld CIT(A) and reiterated the arguments given by the ld CIT(A) in his order before the Bench. He further argued that the first property was purchased by Smt. Krishna Beniwal mother in law of assessee. However, the assessee’s name was added to get benefit of Section 54 by purchase of Rajasthan Housing Board flat was prior to 17 months from the date of sale. The house purchased from Rajasthan Housing Board got registered in the mother in law’s name and the assessee was second, therefore, same was added for future litigation. Smt. Krishna Beniwal had paid all the installments from the Housing Board taken from bank of Rajasthan.  It is also found that the assessee has not transferred any amount from his savings account to direction Rajasthan Housing Board or through loan account for repayment of installment. The ld counsel’s argument also not correct that same bank transfer entry were for the purpose of payment of installments and whatever transfer amount is not sufficient to purchase the house as total cost charged by the Rajasthan Housing Board at Rs. 12,22,900/-. He has further drawn our attention on Board Circle No. 672 dated 16/12/1993 wherein allotment of flat under the self financing scheme of DDA treated construction for the purposes of Section 54 and 54F. The Hon’ble Delhi High Court in the case of CIT Vs.  R.L. Sood (2000) 108 Taxman 227 (Delhi) has held that any payment made in the self financing scheme by the allotee, this payment is to be treated cost of construction for the purposes of capital gain, which was also considered by the Hon’ble Bombay High Court in the case of CIT Vs. Mrs. Hilla J.B. Wadia (1993) 69 Taxman 114 (Bom) wherein similar views has been expressed by the Hon’ble Bombay High Court.  Therefore, he argued that flat purchased from the Rajasthan Housing Board is not entitled for deduction U/s 54F of the Act being a construction of house.

5.1 He further argued that second deduction U/s 54 was claimed by the assessee on C-114, Hanuman Nagar, Jaipur property, the assessee has not given any computation of net capital gain on the basis of each property sold, thus it is not clear from the computation of the assessee that which capital gain was invested in second property. Further as held by the ld CIT(A) that there was a hardly any construction which can be said as a residential house. The ld CIT(A) has given detailed finding on nature of property claimed to be residential house, which also verified by the Ward Inspector. The photograph submitted by the assessee cannot be a conclusive evidence to demonstrate that the construction made on that flat was really a residential house. The assessee was also not residing there, therefore, it is a device to evade tax. Thus, both the claims made by the assessee U/s 54F are not entitled to deduction. He further relied on the decision of Special Bench of Mumbai ITAT in the case ITO Vs. Sushila M Jhaveri (supra) for deduction is allowable U/s 54 and 54F only for one house. Hon’ble ITAT Mumbai Bench decision in thecase Milan Sharad Ruparel Vs. ACIT (supra) wherein it has been held that the residential house was constructed or purchased out of borrowed fund, no deduction U/s 54F. In the case of Rajesh Surana Vs.  CIT (supra), the Hon’ble Rajasthan High Court has held that a plot of land having a boundary wall and garage-cum-room constructed thereon, cannot be treated as a residential house for allowing exemption U/s 53 of the Act. He further relied on the decision of Hon’ble Mumbai ITAT Bench in the case of Kishore H. Galaiya Vs. ITO (2012) 24 Taxmann.com 11 (Mum) wherein it has been held that booking of flat with a builder was a case of construction and not purchase of residential flat.  Therefore, he prayed to confirm the order of the ld CIT(A).

6. We have heard the rival contentions of both the parties and perused the material available on the record. The first property was originally booked by Smt. Krishna Beniwal under Kalptaru Yojna of Rajasthan Housing Board in the year 1992 and thereafter she made payment up to 15/4/2006 to the Board by obtaining loan from bank of Rajasthan in the joint name of Krishna Beniwal and the appellant. The possession of house was taken by Smt. Krishna Beniwal and appellant jointly in November, 2006. The assessee filed an application before Rajasthan Housing Board on 31/5/2007 to adde her name, which has been accepted by it. The registration letter for lease deed was issued in the joint name of Smt. Krishna Beniwal and the appellant. All the payments were made 17 months prior to the date of sale of first flat i.e 20/10/2007. The possession letter was issued in the name of Smt.  Krishna Beniwal on 7/11/2006 and possession was to be taken by Smt.  Krishna Beniwal on or before 14/12/2006, which was taken by her on 15/11/2006. Perpetual lease was executed on 23/6/2007, in which name of Smt. Krishna Beniwal and Smt. Seema Singh Beniwal had been shown. As held by the various courts that purchase of constructed house in self financing scheme from any authority would be treated construction not purchase of residential house. The decision of Hon’ble Delhi High Court as well as Hon’ble Bombay High Court are squarely applicable, therefore we uphold the order of the ld CIT(A) on first exemption claim U/s 54F of the Act. Therefore, we are not giving any finding on additional expenditure incurred on finishing of the house.

6.1 It is undisputed fact that from the order of the Assessing Officer that the assessee had deposited the sale proceeds in the capital gain account at Rs. 30 lacs in SBI, Hatwara Road, Branch, Jaipur in capital gain tax account No. 30427064659 on 29/07/2008 whereas the assessee filed the return belated on 31/3/2009, which was revised on 31/3/2010. As per assessment order the assessee purchased a plot of land at C-114, Hanuman Nagar, Jaipur for a sum of Rs. 28 lacs on 25/1/2010 out of such deposit. Thereafter, the assessee further invested Rs. 1,10,250/- on construction of residential unit which was completed on 15/3/2010. As per ld CIT(A), it was a garage, which was not habitable, which can be used for store purposes or maximum for choukidar to care the safety of land. Now the question whether constructed area of size 10x20’ i.e. 201 sq.ft can be treated a residential house or not. It is clarified by the CBDT that purchase of plot of land is a part of residential house for claiming of deduction U/s 54F of the Act.  The revenue itself has admitted that it is a habitable as a servant quarter, which in other words, was habitable for human being either servant or master or any employee. There is also no restriction that what percentage of the size of flat should be used for residential purposes either under the Income Tax law but there is a restriction of maximum construction by the local authorities of the respective states.  As per the JDA law a room with toilet, kitchen and electric connection is sufficient compliance of construction of house on plot allotted by the JDA. The case law relied by the AR i.e. CIT & Anr. vs. Dr. R. Balaji (2014) 111 DTR 288 (Kar) wherein it has been held that the vendor should use the house as residence for claiming of deduction U/s 54 of the Act and property was not suitable for residence of the assessee. It is also admitted fact that the assessee electric connection in the constructed premises and the first flat was sold by the assessee on 20/10/2007 and second flat was sold on 15/3/2008 whereas the assessee constructed room at plot No. C-114, Hanuman Nagar, Jaipur up to 15/3/2010 which is within three years from the date of sale of first flat i.e. 20/10/2007. Thus, the assessee is entitled to deduction U/s 54F of the Act on second investment at Hanuman Nagar property at Rs.  29,37,200/-. Accordingly, we reverse the order of the ld CIT(A) on this point.

7. The third ground of the assessee’s appeal is against charging interest U/s 234A & 234B of the Act, which is consequential to the above finding, therefore, the Assessing Officer take decision as per law.

8. In the result, the assessee’s appeal is partly allowed.