N.S. Bhatnagar, Adv. for the Assessee. Dr. Anjula Jain, Sr. DR for the Revenue.

The present appeal has been filed by the assessee against the order of ld . CIT(A)-18 , New Delhi dated 04 .07.2016.

2. Following grounds have been raised by the assessee:

“1. That the learned ITO erred in law in denying the benefit admissible u/s 54 of the Income Tax Act, 1961 by wrongly relying upon Clause 2(a) o f Section 54F o f the Income Tax Act, 1961 which on the facts o f the case in no t applicable.

2. That the learned CIT(A) erred in law in upholding the assessmen t on wrong facts and maintaining the disallowance and addition s of the Long Term Capital Gain at Rs .1,76,95,024/-

3. That the o rders o f the autho ri ties below are against the facts and pleading befo re the authorities below in respect o f the construction on the property at D-279, Defence Colony, New Delhi in respect o f which the deductions u/s 54F was claimed . There is no dispute with regard to the amount o f investment in the con struction of the house at D-279, De fence Colony, New Delhi claimed at Rs .1,76,95,024/- which was provided ou t o f the capital gain a/c. scheme provided permissible under the law.

3. During the year under consideration, the assessee has sold immovable property at Plot No. T-2/2 , DLF City, Phase-III , Gurgaon on 28.04.2011 and claimed deduction u/s 54F of the Income Tax Act, 1961 on account of construction of house at D-279 , Defence Colony, New Delhi. The calculation of long term capital gain as per computation o f income was as under: Long Term Capital Gains FLAT

Full value o f consideration 27700000

Less: Index Cost of acquisition 5849352

Less: Index Cost of improvement 185967 6035319

Less: Exempt u/s 54 17695024

Total Long Term Capital Gains 3969657

Total Capital Gains 3969657

4. The AO found from the submission of the assessee that the assessee has also purchased a residential flat at Ra jendra Nagar on 07 .09 .2011 and since the assessee has already having ano ther house as on completion of construction of D- 279, De fence Colony, New Delhi , the AO held that the assessee is not eligible u/s 54F as the assessee has already purchased the residential flat at Ra jendra Nagar out of the sale proceeds. The ld . CIT (A) confirmed the order o f the AO.

5. We have heard the arguments o f both the parties and perused the material on record.

6. The following undisputed facts emanate from the records:

1. 28 .04.2011 - Sale o f the house in DLF

2. 01 .08.2011 – Sanction o f building plan

3. 07 .08.2011 to 17.09 .2011 – Demolition of old house D-279

4. 13 .09.2011 – Purchase of Ra jendra Nagar flat

5. 01 .02.2013 – Occupancy certificate o f D-279

7. The due date o f filing of the return for the relevant assessment year was 31.08 .2012. The assessee has duly deposited the capital gains in the capital gains savings A/c No. 0913208100066 in accordance with the provisions of the Act.

8. The details o f the withdrawal for construction from the above CG Savings A/c o f house at D-279 , De fence Colony , New Delhi (on demolition of the ancestral house) is as under:

1. Oriental Bank of Commerce (Capital Gain A/c)- A/c No. 0913208100066 From 13.08 .2012 to 13.05 .2013 Rs.63 ,29,745/-

2. Induslnd Bank – A/c No.100011312441 From 01.08 .2011 to 24.07 .2012 – Total – Rs.15739401 1⁄2 = 7869700/- Rs.78 ,69,700/- (Joint with Brother Anil)

3. Induslnd Bank – A/c No.100003514235 From 04.06 .2011 to 31.07 .2012 (Joint with Wi fe Reema) Rs.34 ,73,934/- Total Rs.1 ,76,73 ,379/-

9. The provisions o f Section 54 and 54F are as under:

“Section 54: [(1)] [[Subject to the provisions of sub- section (2), where, in the case of an assessee51 being an individual or a Hindu undivided family], the capital gain arises from the trans fer of a long-term capital asset [***], being buildings or lands appurtenant thereto , and being a residential house, the income of which is chargeable under the head "Income from house property" (hereafter in this section referred to as the original asset), and the assessee has within a period of [one year be fore 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], then], instead of the capital gain being charged to income- tax as income o f the previous year in which the transfer took place , it shall be dealt with in accordance with the following provisions of this section, that is to say,—

(i) if the amount o f the capital gain [is greater than the cost of [the residential house] so purchased or constructed (hereafter in this section referred to as the new asset)], the difference be tween the amount of the capital gain and the cost of the new asset shall be charged under section 45 as the income of the previous year; and for the purpose of computing in respect o f the new asset any capital gain arising from its transfer within a period o f three years o f its purchase or construction , as the case may be, the cost shall be nil; or

(ii) if the amount of the capital gain is equal to or less than the cost o f the new asset, the capital gain shall not be charged under section 45; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period o f three years o f its purchase or construction, as the case may be, the cost shall be reduced by the amount of the capital gain.

Following provisos shall be inserted after clause (ii) o f sub-section (1) of section 54 by the Finance Act, 2019, w.e .f. 1-4-2020:

Provided that where the amount of the capital gain does not exceed two crore rupees, the assessee may, at his option, purchase or construct two residential houses in India, and where such option has been exercised,—

(a) the provisions of this sub-section shall have effect as if for the words "one residential house in India", the words "two residential houses in India" had been substituted;

(b) any reference in this sub-section and sub-section (2) to "new asset" shall be construed as a reference to the two residential houses in India:

Provided further that where during any assessment year, the assessee has exercised the option re ferred to in the first proviso, he shall not be subsequently entitled to exercise the option for the same or any other assessment year.

[(2) The amount of the capital gain which is not appropriated by the assessee towards the purchase of the new asset made within one year be fore the date on which the transfer of the original asset took place, or which is not utilised by him for the purchase or construction o f the new asset be fore the date of furnishing the return o f 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 Of ficial Gaze tte, frame in this behal f and such return shall be accompanied by proof o f such deposit; and, for the purposes of sub-section (1), the amount, i f any, already utilised by the assessee for the purchase or construction of the new asse t 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 o f the new asset within the period speci fied in sub-section (1), then,—

(i) the amount not so utilised shall be charged under section 45 as the income of the previous year in which the period of three years from the date of the transfer of the original asset expires; and

(ii) the assessee shall be entitled to withdraw such amount in accordance with the scheme aforesaid. Explanation.—[Omitted by the Finance Act, 1992, w.e .f. 1-4-1993.]

Sect ion 54F” (1) [Subject to the provisions o f 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 o f any long-term capital asset, not being a residential house (hereafter 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 trans fer took place purchased, or has within a period o f three years after that date [constructed, one residential house in India] (hereafter 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,—

(a) if the cost o f the new asset is not less than the net consideration in respect o f the original asset, the whole of such capital gain shall not be charged under section 45;

(b) if the cost o f the new asset is less than the net consideration in respect o f the original asset, so much of the capital gain as bears to the whole of the capital gain the same proportion as the cost of the new asset bears to the net consideration, shall not be charged under section 45:

[Provided that nothing contained in this sub-section shall apply where—

(a) the assessee ,—

(i) owns more than one residential house , other than the new asset, on the date of trans fer of the original asset; or

(ii) purchases any residential house , other than the new asse t, within a period o f one year after the date of transfer o f the original asset; or

(iii) constructs any residential house , other than the new asset, within a period o f three years after the date o f transfer of the original asset; and

(b) the income from such residential house, o ther than the one residential house owned on the date o f transfer o f 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 o f the original asset, or constructs, within the period o f 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 o f the cost o f such new asset as provided in clause (a), or, as the case may be, clause (b), o f sub-section (1), shall be deemed to be income chargeable under the head "Capital gains" relating to long-term capital assets o f 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 trans fer o f the original asset not charged under section 45 on the basis o f the cost of such new asset as provided in clause (a) or, as the case may be , clause (b), o f sub-section (1) shall be deemed to be income chargeable under the head "Capital gains" relating to long-term capital asse ts 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 be fore 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 be fore the date of furnishing the return o f 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 scheme76 which the Central Government may, by notification in the Of ficial Gaze tte, frame in this behal f and such return shall be accompanied by proof o f such deposit ; and, for the purposes of sub-section (1), the amount, i f any, already utilised by the assessee for the purchase or construction of the new asse t 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 o f the new asset within the period speci fied in sub-section (1), then,—

(i) the amount by which—

(a) the amount of capital gain arising from the transfer of the original asset not charged under section 45 on the basis o f the cost of the new asset as provided in clause (a) or, as the case may be, clause

(b) of sub-section (1), exceeds (b) the amount that would not have been so charged had the amount actually utilised by the assessee for the purchase or construction of the new asset within the period specified in sub-section (1) been the cost of the new asset, shall be charged under section 45 as income of the previous year in which the period of three years from the date of the transfer o f the original asset expires; and

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

Explanation.—[Omitted by the Finance Act, 1992, w.e .f. 1-4-1993.]]”

10. On going through the facts o f the case and the provisions of the Act, the following scenario emerges:

• As on the date of transfer o f the original asset on 28.04.2011, the assessee doesn’t own more than one residential house .

• The capital gains were not utilized for the Ra jendra Nagar flat purchase on 13.09.2011.

• The capital gains have been duly deposited in the CG Savings A/c .

• The same amounts from the CG savings A/c have been utilized for the payment of various expenses incurred for the construction of house at D-279, Defence Colony, New Delhi which can be veri fied from the bank statement.

• The remaining expenditure incurred for the construction of the house have been me t from the joint A/c maintained with Indusind Bank.

• The occupancy certificate reveals that the completion of the construction was within 2 years from the date of sale of the original asset (28 .04.2011-01.02.2013).

11. Thus, from the perusal of the facts, we hold that the revenue authorities have mislead themselves on holding that the purchase o f the Ra jendra Nagar flat out of the sale proceeds of the original asse t was on the basis o f wrong facts . Hence , keeping in view the facts of the case that the capital gains have been utilized for construction of house at D-279, Defence Colony, New Delhi and as per the provisions of the Act, the assessee doesn’t have more than one house which is chargeable to tax under the head “income from house property” other than the one residential house owned on the date of sale of original asset, we hereby hold that the addition made by the revenue authorities is unwarranted.

12. In the result, the appeal of the assessee is allowed. Order Pronounced in the Open Court on 30/04/2020.