IT APPEAL NO. 2692 (AHD.) OF 2014
[ASSESSMENT YEAR 2008-09]

G.D. AGARWAL, VICE-PRESIDENT 
AND KUL BHARAT, JUDICIAL MEMBER

Mehul Shah, AR for the Appellant. 
Narendra Singh, Sr. DRfor the Respondent.

ORDER

Kul Bharat, Judicial Member - This appeal by the Assessee is directed against the order of the Ld. Commissioner of Income Tax(Appeals)-V, Surat ['CIT(A)' in short] dated 17/07/2014 pertaining to Assessment Year (AY) 2008-09. The Assessee has raised the following grounds of appeal:—
"Denying exemption u/s.54F

2. Briefly stated facts are that the case of the assessee was reopened and the notice u/s.148 of the Income Tax Act, 1961 (hereinafter referred to as "the Act") was issued to the assessee on 27/03/2012 and served upon assessee on 28/03/2012. In response to the notice, the assessee filed return of income on 30/04/2012 received by the Assessing Officer (AO in short) on 01/05/2012. Subsequently, the AO framed assessment u/s.143(3) r.w.s. 147 of the Act vide order dated 30/03/2013; thereby the AO made addition of Rs. 28,07,078/- on account of Long Term Capital Gain (LTCG) as discussed in para-2 of assessment order, addition on account of unexplained investment in mutual funds of Rs. 2,40,000/- and addition towards undisclosed interest income of Rs. 2,882/-. Against the said assessment order, the assessee carried the matter before the ld.CIT(A), who after considering the submissions of the assessee partly allowed the appeal; wherein the ld.CIT(A) deleted the addition of Rs. 2,40,000/- and confirmed the addition made on account of LTCG of Rs. 28,07,078/-. Aggrieved by the order of the ld.CIT(A), the assessee is further in appeal before us.

3. Ground No.4 which reads as under:—
Notice u/s.148 issued after the limitation period

4. On the facts and in the circumstances of the case, the learned CIT(A's) erred in confirming the action of the Assessing Officer with regard to reopening of assessment as being barred by limitation.
3.1 The ld. counsel for the assessee submitted that the ld. CIT(A) failed to appreciate the fact that the reopening of the assessment was bad by limitation.

3.2 On the contrary, Sr. DR submitted that this argument of the assessee is misplaced and he submitted that no such ground was taken up before the ld. CIT(A). Moreover, the assessee has not placed on record notice issued u/s.148 of the Act.

4. We have heard the rival submissions, perused the material available on record and gone through the orders of the authorities below. In support of the contention that the action of the AO is barred by time for reopening of the assessment, the assessee has not placed any material on record. Moreover, the ld. counsel for the assessee could not point out as to how the order of the reopening is barred by time. As per section 149 of the Act, no notice u/s.148 can be issued for relevant assessment year, if four years have elapsed from the end of the relevant assessment year, unless he case falls under clause (b). If four years, but not more than six years, have elapsed from the end of the relevant assessment year unless the income chargeable to tax which has escaped assessment amounts to or is likely to amount to one lakh rupees or more for that year. In the case in hand, it is not in dispute that the notice was issued on 27/03/2012 and served upon the assessee on 28/03/2012. The relevant AY is 2008-09 that would end on 31/03/2009 and the four years are to be reckoned from 01/04/2009. Therefore, we see no merit in the ground of assessee's appeal and the same is rejected.

5. Ground Nos.1, 2 & 3 are against denial of deduction u/s.54F of the Act. The ld. counsel for the assessee submitted that the AO was not justified in denying the deduction to the assessee and such act of the AO was confirmed by the ld. CIT(A). The ld. counsel for the assessee submitted that the assessee had sold office for Rs. 36 lacs on 08/01/2008. And had invested Rs. 1,06,00,000/- in residential property on 05/10/2009. The authorities below have grossly erred in not giving the benefit of section 54F of the Act. In support of the contention, ld.counsel for the assessee placed reliance on various case-laws enclosed with the paper-book of the assessee (at page Nos.3 to 19); including the judgment of Hon'ble High Court of Punjab and Haryana in the case of CIT v. Jagtar Singh Chawla [2013] 215 Taxman 154/33 taxmann.com 38 and the judgment of Hon'ble High Court of Karnataka in the case of CIT v. K. Ramachandra Rao [2015] 56 taxmann.com 163/230 Taxman 334.

5.1 On the contrary, ld.Sr.DR Shri Narendra Singh vehemently argued that it is not the case where the assessee himself has disclosed the transaction. He submitted that the AO has rightly denied the claim of deduction u/s.54F of the Act.

6. We have heard the rival submissions, perused the material available on record and gone through the orders of the authorities below as well as the case-law relied upon by the ld. counsel for the assessee. The only question which needs to be decided is whether the assessee is entitled for deduction u/s.54F of the Act under the facts and circumstances of the present case. Before adverting to the rival contentions, it would be appropriate for the sake of clarity to reproduce the relevant provisions of Section 54F of the Act.

'Section 54F of the Act
[Capital gain on transfer of certain capital assets not to be charged in case of investment in residential house.

(1) [Subject to the provisions of sub-section (4), where in the case of an assessee being an individual or a Hindu undivided family], the capital gain arises from the transfer of any long-term capital asset, not being a residential house (hereinafter in this section referred to as the original asset), and the assessee has, within a period of one year before or [two years] after the date on which the transfer took place purchased, or has within a period of three years after that date [constructed, one residential house in India] (hereinafter in this section referred to as the new asset), the capital gain shall be dealt with in accordance with the following provisions of this section, that is to say,—

[Provided that nothing contained in this sub-section shall apply where—
(a) the assessee,—

(b) the income from such residential house, other than the one residential house owned on the date of transfer of the original asset, is chargeable under the head "Income from house property".]
Explanation : For the purposes of this section,—

[** **] "net consideration", in relation to the transfer of a capital asset, means the full value of the consideration received or accruing as a result of the transfer of the capital asset as reduced by any expenditure incurred wholly and exclusively in connection with such transfer.

(2) Where the assessee purchases, within the period of [two years] after the date of the transfer of the original asset, or constructs, within the period of three years after such date, any residential house, the income from which is chargeable under the head "Income from house property" , other than the new asset, the amount of capital gain arising from the transfer of the original asset not charged under section 45 on the basis of the cost of such new asset as provided in clause (a), or, as the case may be, clause (b), of sub-section (1), shall be deemed to be income chargeable under the head "Capital gains" relating to long-term capital assets of the previous year in which such residential house is purchased or constructed.

(3) Where the new asset is transferred within a period of three years from the date of its purchase or, as the case may be, its construction, the amount of capital gain arising from the transfer of the original asset not charged under section 45 on the basis of the cost of such new asset as provided in clause (a) or, as the case may be, clause (b), of sub-section (1), shall be deemed to be income chargeable under the head "Capital gains" relating to long-term capital assets of the previous year in which such new asset is transferred.]

[(4) The amount of the net consideration which is not appropriated by the assessee towards the purchase of the new asset made within one year before the date on which the transfer of the original asset took place, or which is not utilised by him for the purchase or construction of the new asset before the date of furnishing the return of income under section 139, shall be deposited by him before furnishing such return [such deposit 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 section 139] in an account in any such bank or institution as may be specified in, and utilised in accordance with, any scheme which 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 purposes of sub-section (1), the amount, if any, already utilised 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:

Provided that if the amount deposited under this sub-section is not utilised wholly or partly for the purchase or construction of the new asset within the period specified in sub-section (1), then,—
(i) the amount by which—

(ii) the assessee shall be entitled to withdraw the unutilised amount in accordance with the scheme aforesaid.'

6.1 A combined reading of section 54F(1) and 54F(4) of the Act, it is evident that the assessee would be entitled for exemption/deduction u/s.54F of the Act in the event he purchases new asset within one year from the date of transfer of original asset or the amount is utilized before the date of furnishing the return u/s.139 of the Act. In a case it is not utilized for the purpose of aforesaid and the period aforementioned section 54F(4) mandates the assessee to deposit such amount before due date of filing of return u/s.139(1) of the Act. Therefore, there is no ambiguity in the provision so far deposit of the unutilized amount is concerned, it has to be deposited in a specified capital gain account before the due date of filing of return u/d.139(1) of the Act. The question which is required to be examined whether the assessee has utilized the amount before the time limit prescribed for such purpose or if not whether the amount was deposited in the manner prescribed u/s.54F(4). In the present case, the undisputed facts are that the original asset was transferred on and the new asset was purchased on 05/10/2009. The assessee had not filed income-tax return u/s.139(1) so that matter u/s.139 of the Act. It was only in response to notice u/s.148 of the act dated 27/03/2012 the assessee filed return on 30/04/2012. The contention of the assessee is that the amount was utilized before due date of filing of return. As per assessee, the period as prescribed under section 54F(4) for deposit in the capital gain account should be reckoned from the due date of filing of return u/s.139(4) of the Act. In support of this contention, ld.counsel for the assessee relied on the judgement of Hon'ble Punjab & Haryana High Court rendered in the case of Jagtar Singh Chawla (supra) and judgement of Hon'ble Karnataka High Court rendered in the case of K. Ramachandra Rao (supra). The Hon'ble High Court of Punjab & Haryana held as under:—

"In the case of Fathima Bai v. ITO, ITA No.435 of 2004 it was held that the extended due date u/s. 139(4) would be 31.3.1990. The assessee did not file the return within the extended due date. However, the assessee had utilized the entire capital gains by purchase of a house property within the stipulated period of section 54(2) i.e., before the extended due date for return u/s 139. The assessee technically may have defaulted in not filing the return u/s 139(4). But, however, utilized the capital gains for purchase of property before the extended due date u/s 139(4). The contentior of the revenue that the deposit in the scheme should have been made before the initial due date and not the extended due date was held to be an untenable contention. In the present case, the assessee had proved the payment of substantial amount of sale consideration for purchase of a residential property on or before 31.3.2008, that was within extended period of limitation of filing of return. Only a sum of Rs. 24 lacs was paid out of total sale consideration on 23.4.2008, though possession was delivered to the assessee on execution of the power of attorney on 30.3.2008. Since the assessee, has acquired a residential house before the end of the next FY in which sale had taken place, therefore, the assessee is not liable to pay any capital gain. Such was the view taker by the ITAT. In view of the above, no merit was found in the appeal."

6.2 The Hon'ble Karnataka High Court in the case of K. Ramachandra Rao (supra) answered the question in favour of assessee i.e. when the assessee had invested the entire sale consideration in construction of a residential house within the three years from the date of transfer. Could he be denied exemption under section 54 F on the ground that he did not deposit the said amount in capital gain account scheme before the due date prescribed u/s.139(1) of the Act. The Hon'ble High Court of Karnataka High Court held as under:—

"As it clear from Sub-section (4) in the event of the assessee 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."

6.3 In the present case, the assessee purchased new asset on 05/10/2009 and had transferred the original asset on 8/01/2008. As per Section 54F (1) of the Act, the exemption would be available if the assessee purchased the residential house within two years after the date when transfer took place. As per the judgment of Hon'ble Karnataka High Court, the provisions of section 54F(4) would not be attracted in the event if the assessee has purchased or constructed the residential house within the period prescribed under section 54(1) of the Act. In the case in hand, there is no dispute with regard to the fact that the assessee had purchased within two years [the period prescribed u/s.54(F(1)] a new asset on 05/10/2009 from the date of transfer of the original asset. The Revenue has not cited or placed on record any contrary judgment by the Hon'ble Jurisdictional High Court or Hon'ble Supreme Court. Therefore, respectfully following the ratio laid down by the Hon'ble Karnataka High Court in the case of K. Ramachandra Rao(supra), we hereby set aside the impugned order and direct the AO to re-compute the assessed income after granting the benefit of section 54F of the Act to the assessee.

7. In the result, appeal of the assessee is partly allowed for statistical purposes.