NEIL JAYANT GAJJAR, MUMBAI v. ITO WD 12(3)(4), MUMBAI

ITA 1726/MUM/2009 | 2005-2006
Pronouncement Date: 25-02-2011 | Result: Partly Allowed

Appeal Details

RSA Number 172619914 RSA 2009
Bench Mumbai
Appeal Number ITA 1726/MUM/2009
Duration Of Justice 1 year(s) 11 month(s) 8 day(s)
Appellant NEIL JAYANT GAJJAR, MUMBAI
Respondent ITO WD 12(3)(4), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 25-02-2011
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted B
Tribunal Order Date 25-02-2011
Date Of Final Hearing 24-11-2010
Next Hearing Date 24-11-2010
Assessment Year 2005-2006
Appeal Filed On 17-03-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH B MUMBAI BEFORE SHRI N.V.VASUDEVAN(J.M) & SHRI J.SUDHAKAR R EDDY(A.M) ITA NO.1726/MUM/2009(A.Y. 2005-06) MR. NEIL JAYANT GAJJAR C/O. PATHOLOGICAL LABORATORY UNION CO-OPERATIVE INSURANCE BLDG. P.M.ROAD MUMBAI 1. PAN :AACPG 5889P (APPELLANT) VS. THE ITO WARD 12(3)(4) AAYKAR BHAVAN MK ROAD MUMBAI 20. (RESPONDENT) APPELLANT BY : S/SHRI J.D.MISTRY/G.S.PIKALE RESPONDENT BY : SHRI HARI GOVIND SINGH ORDER PER N.V.VASUDEVAN J.M THIS IS APPEAL BY THE ASSESSEE AGAINST THE ORDER DA TED 5/2/2009 OF CIT(A) 12 MUMBAI RELATING TO A.Y 2005-06. 2. THE FIRST DISPUTE THAT ARISES FOR CONSIDERATION IN THIS APPEAL BY THE ASSESSEE IS AS TO WHETHER THE ASSESSING OFFICER WAS JUSTIFIED IN D ETERMINING THE FAIR MARKET VALUE (FMV) AS ON 1/4/1981 AT A SUM OF RS. 32 97 600/- AS AGAINST THE CLAIM OF THE ASSESSEE THAT FMV OF THE PROPERTY AS ON 1/4/1981 WA S RS. 74 50 000/-. THE ABOVE ISSUE IS PROJECTED IN GROUND NO.1 & 2 RAISED BY THE ASSESSEE BEFORE THE TRIBUNAL. 2. THE FACTUAL BACKGROUND WITH REGARD TO THE AFORES AID ISSUE IS AS FOLLOWS: THE ASSESSEE IS AN INDIVIDUAL. DURING THE PREVIO US YEAR THE ASSESSEE SOLD PROPERTY NAMELY A BUNGALOW SITUATED AT PLOT NO.35 AZAD ROAD JUHU KOLIWADA SANTACRUZ(WEST) MUMBAI (THE PROPERTY) ALONG WITH THREE OTHER CO-OWNERS OF THE SAID ITA NO.1726/MUM/2009(A.Y. 2005-06) 2 PROPERTY. THERE IS NO DISPUTE THAT THE SALE CONSID ERATION RECEIVED BY THE ASSESSEE ON SALE OF HIS 1/4 TH SHARE OVER THE PROPERTY WAS RS.3.50 CRORES. THE P ROPERTY HAD BEEN ACQUIRED WAY BACK IN THE YEAR 1940. IN ACCO RDANCE WITH THE OPTION AVAILABLE TO THE ASSESSEE U/S.55(2)(B)(I) OF THE ACT THE ASS ESSEE ADOPTED THE COST OF ACQUISITION FOR THE PURPOSE OF COMPUTING CAPITAL GA INS BY ADOPTING FMV OF THE PROPERTY AS ON 1/4/1981. THE ASSESSEE FILED A COM PUTATION OF LONG TERM CAPITAL GAIN ON SALE OF THE PROPERTY AS FOLLOWS: 1/4 TH VALUE OF SALE CONSIDERATION RS. 3 5 0 00 000 LESS:INDEXED COST OF ACQUISITION[1/4(74 50 000)*48 0/100] RS. 89 40 000 ---------------------- LONG TERM CAPITAL GAI N : RS. 2 60 60 000 LESS: EXEMPTIONS: ------------------------ UNDER SEC.54: TOTAL COST OF NEW RESIDENTIAL PROPER (BUNGALOW) RS. 98 87 215 UNDER SEC. 54EC: (1) PURCHASE OF NABARD CAPITAL GAIN BOND RS.1 00 00 000 (2) PURCHASE OF NATIONAL HOUSING BANK CAPITAL GAIN BOND RS. 50 00 000 RS.2 48 87 21 5 -------------------- --------------------- NET TAXABLE LONG TERM CAPITAL GAIN : RS. 11 72 785 ============ 3. IT CAN BE SEEN FROM THE ABOVE COMPUTATION OF LON G TERM CAPITAL GAIN THE ASSESSEE ADOPTED THE FMV AS ON 1/4/1981 AT RS. 74 5 0 000/-(FOR THE ENTIRE PROPERTY). IN SUPPORT OF THE CLAIM OF THE ASSESSEE IT HAD FILE D THE REPORT OF ONE M/S. POONAGER BILMORIA & COMPANY. ARCHITECTS AND SURVEYOR DATED 23/4/04. ACCORDING TO THE ASSESSING OFFICER THE FMV ADOPTED IN THIS REPORT AS ON 1/4/1981 WAS NOT BASED ON ANY SALE INSTANCES. THE ASSESSING OFFICER WAS ALSO OF THE VIEW THAT THE BUNGALOW WHICH WAS SOLD WAS VERY OLD AND THEREFORE THE VAL UE ESTIMATED BY THE VALUERS WERE ON THE HIGHER SIDE. THE ASSESSING OFFICER ALSO OBS ERVED THAT VALUERS HAD TAKEN INTO ACCOUNT THE DEVELOPMENT AREA AVAILABLE AS PER THE RULES APPLICABLE WHILE ESTIMATING FMV AS ON 1/4/1981 AT RS. 74 50 000/-. THE ASSESSING OFFICER FOR THE ITA NO.1726/MUM/2009(A.Y. 2005-06) 3 ABOVE REASONS MADE A REFERENCE TO THE DVO ON 18/6/2 007. THE DVO ESTIMATED THE FMV OF THE PROPERTY AS ON 1/4/1981 AT RS. 27 48 000 /-. THE ASSESSING OFFICER ADOPTED THE SAID VALUE AS DETERMINED THE DVO WHILE COMPUTING CAPITAL GAIN. 4. ON APPEAL BY THE ASSESSEE THE CIT(A) CONFIRMED T HE ACTION OF THE ASSESSING OFFICER IN ADOPTING FMV AS ON 1/4/1981 AT RS. 27 4 8 000/-. BEFORE CIT(A) ONE OF THE ARGUMENTS OF THE ASSESSEE WAS THAT UNDER SECTION 55 A(A) THE REFERENCE TO THE DVO COULD BE MADE ONLY IF THE FMV AS ON 1/4/1981 IS FOU ND TO BE HIGHER THAN WHAT IS CLAIMED BY THE ASSESSEE BASED ON THE REPORT OF THE REGISTERED VALUER. SINCE THE FMV AS ON 1/4/1981 AS ADOPTED BY THE DVO WAS LOWER THAN THE VALUE AS ADOPTED BY THE REGISTERED VALUER THE REFERENCE TO THE DVO MADE BY THE ASSESSING OFFICER ITSELF WAS INVALID. ON THE ABOVE SUBMISSION THE CIT(A) FO UND THAT THE VALUATION AS GIVEN BY THE ASSESSEE WAS BASED ON THE REPORT OF A VALUE R WHO WAS NOT A REGISTERED VALUER AND THEREFORE THIS OBJECTION WAS OVERRULED B Y THE CIT(A). 5. AGGRIEVED BY THE AFORESAID DECISION OF THE CIT (A) THE ASSESSEE HAS RAISED GROUND NO.1 &2 BEFORE THE TRIBUNAL. 6. WE HAVE HEARD THE SUBMISSIONS OF THE LD. COUNSEL FOR THE ASSESSEE AND THE LD. D.R. THE PROVISIONS OF SECTION 55A IN SO FAR A S IT IS NECESSARY FOR THE PURPOSE OF DISPOSAL OF THE PRESENT APPEAL READS AS FOLLOWS:- 55A. WITH A VIEW TO ASCERTAINING THE FAIR MARKET VALUE OF A CAPITAL ASSET FOR THE PURPOSES OF THIS CHAPTER THE [ASSESSING] OFFICER MAY REFER THE VALUATION OF CAPITAL ASSET TO A VALUATION OFFICER ( A ) IN A CASE WHERE THE VALUE OF THE ASSET AS CLAIMED BY THE ASSESSEE IS IN ACCORDANCE WITH THE ESTIMATE MADE BY A REGISTERE D VALUER IF THE [ASSESSING] OFFICER IS OF OPINION THAT THE VALUE SO CLAIMED IS LESS THAN ITS FAIR MARKET VALUE ; ( B ) IN ANY OTHER CASE IF THE [ASSESSING] OFFICER IS OF OPINION ( I ) THAT THE FAIR MARKET VALUE OF THE ASSET EXCEEDS T HE VALUE OF THE ASSET AS CLAIMED BY THE ASSESSEE BY MORE THAN SUCH PERCENTAGE OF THE VALUE OF THE ASSET AS SO CLAIMED OR BY MORE THAN SUCH AMOUNT AS MAY BE PRESCRIBED IN THIS BEHALF ; OR ITA NO.1726/MUM/2009(A.Y. 2005-06) 4 ( II ) THAT HAVING REGARD TO THE NATURE OF THE ASSET AND OTHER RELEVANT CIRCUMSTANCES IT IS NECESSARY SO TO DO AND WHERE ANY SUCH REFERENCE IS MADE THE PROVISION S OF SUB-SECTIONS (2) (3) (4) (5) AND (6) OF SECTION 16A CLAUSES ( HA ) AND ( I ) OF SUB-SECTION (1) AND SUB-SECTIONS (3A) AND (4) OF SECTION 23 SU B-SECTION (5) OF SECTION 24 SECTION 34AA SECTION 35 AND SECTION 37 OF THE WEALTH-TAX ACT 1957 (27 OF 1957) SHALL WITH THE NECESSARY MODIFICATION S APPLY IN RELATION TO SUCH REFERENCE AS THEY APPLY IN RELATION TO A REFER ENCE MADE BY THE ASSESSING] OFFICER UNDER SUB-SECTION (1) OF SECTION 16A OF THAT ACT. EXPLANATION. IN THIS SECTION VALUATION OFFICER HAS THE SAME MEANING AS IN CLAUSE ( R ) OF SECTION 2 OF THE WEALTH-TAX ACT 1957 (27 OF 1957).] 7. CLAUSE (A) TO SECTION 55A WILL APPLY ONLY IF TW O CONDITIONS ARE CUMULATIVELY SATISFIED NAMELY (I) VALUE OF THE ASSET AS CLAIMED BY THE ASSESSEE SHOULD BE BASED ON THE ESTIMATE MADE BY THE REGISTERED VALUER AND ( II) THE ASSESSING OFFICER IS OF THE OPINION THAT THE VALUE SO CLAIMED IS LESS THAN ITS FMV. ADMITTEDLY IN THE PRESENT CASE THE SECOND CONDITION WAS NOT SATISFIED BECAUSE THE AO WAS OF THE VIEW THAT THE FMV CLAIMED BY THE ASSESSEE AS ON 1-4-1981 WAS MORE WHEREAS THE PROVISIONS CONTEMPLATE THAT THE AO SHOULD BE OF THE OPINION TH AT THE FMV AS ON 1-4-1981 CLAIMED BY THE ASSESSEEE IS LESS. HOWEVER THE FIR ST CONDITION NAMELY THAT THE VALUATION AS CLAIMED BY THE ASSESSEE SHOULD BE BASE D ON THE REPORT OF THE REGISTERED VALUER IS NOT SATISFIED AND THEREFORE SECTION 55A(A) IS NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. 8. HOWEVER PROVISIONS OF CLAUSE (B) WOULD BE APPLI CABLE. THE ASSESSING OFFICER CAN MAKE A REFERENCE TO DVO UNDER SECTION 55A(B) ON LY UNDER CLAUSE (II) BECAUSE UNDER CLAUSE (I) THE AO SHOULD BE OF THE OPINION TH AT THE VALUE CLAIMED BY THE ASSESSEE AS ON 1-4-1981 SHOULD EXCEED THE FMV BY SU CH PERCENTAGE OF THE VALUE OF THE ASSET AS SO CLAIMED OR BY MORE THAN SUCH AMOUNT AS MAY BE PRESCRIBED IN THIS BEHALF. IN THIS CASE AS WE HAVE ALRELADY SEEN THE AO WAS SATISFIED THAT THE FMV AS ON 1-4-1981 CLAIMED BY THE ASSESSEE WAS LESS. IN O THER WORDS THE ASSESSING OFFICER WAS OF THE OPINION THAT THE FMV AS ON 1/4/1 981 CLAIMED BY THE ASSESSEE WAS HIGHER THAN ITS TRUE FMV AS ON 1-4-1981. IN SUCH C IRCUMSTANCES CLAUSE (I) WILL NOT BE ITA NO.1726/MUM/2009(A.Y. 2005-06) 5 ATTRACTED. AS FAR AS CLAUSE (II) IS CONCERNED WE F IND THAT THE REQUIREMENT IS THAT THE ASSESSING OFFICER SHOULD HAVE REGARD TO THE NATURE OF THE ASSET AND OTHER CIRCUMSTANCES AND THEN SHOULD COME TO THE CONCLUSI ON THAT IT IS NECESSARY TO MAKE A REFERENCE TO THE DVO FOR DETERMINING THE FMV OF THE ASSET AS ON 1/4/1981. IN THIS REGARD WE HAVE ALREADY SEEN THAT THE REASONS FOR MA KING A REFERENCE TO THE DVO AS RECORDED BY THE ASSESSING OFFICER IN THE ORDER OF A SSESSMENT IS THAT THE VALUE ESTIMATED BY THE VALUER APPEAR TO BE ON THE HIGHER SIDE. IT HAS BEEN HELD BY THE HONBLE GUJARAT HIGH COURT IN THE CASE OF HIABEN JA YANTILAL SHAH VS. ITO 310 ITR 31(GUJ) THAT UNDER SECTION 55A(B) THE ASSESSING OFF ICER HAS TO RECORD HIS OPINION FOR MAKING A REFERENCE TO DVO. IN DOING SO HE HAS TO S PELL OUT AS TO HOW IN HIS OPINION THE FMV CLAIMED BY THE ASSESSEE NEEDS TO BE SUBSTIT UTED AND THIS WAS THE REQUIREMENT OF THE PROVISION OF SECTION 55A OF THE ACT. THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. UMED INTERNATIONAL PVT . LTD. 330 ITR 506 HAS TAKEN THE VIEW THAT UNDER SECTION 55A(B) THE ASSESSING OFFICE R HAS TO FORM AN OPINION AS TO HOW THE CONDITION PRECEDENT FOR MAKING A REFERENCE TO DVO ARE SATISFIED. IN THE PRESENT CASE AS WE HAVE ALREADY SEEN THERE IS NO SU CH SATISFACTION DISCERNABLE. APART FROM THE ABOVE THE SATISFACTION OF THE AO SH OULD HAVE BEEN THAT THE FMV CLAIMED BY THE ASSESSEE WAS HIGHER AND THIS SHOULD BE BASED ON SOME REASONS. THE FACT THAT THE PROPERTY WAS OLD AND THAT THE VAL UER DETERMINED VALUE BASED ON AREA AVAILABLE FOR DEVELOPMENT AS PER THE DEVELOPME NT CONTROL RULES ARE NOT GERMANE TO COME TO CONCLUSION THAT THE FMV DETERMIN ED BY THE VALUER WAS HIGHER. SUCH REASONS ARE VAGUE AND DO NOT REFLECT PROPER EX ERCISE OF DISCRETION BY THE AO AS CONTEMPLATED IN SEC.55A(B)(II) OF THE ACT. IN THE ABOVE CIRCUMSTANCES WE HOLD THAT THE REFERENCE TO THE DVO UNDER SECTION 55A BY THE A SSESSING OFFICER WAS BAD IN LAW. CONSEQUENTLY THE FMV AS DECLARED BY THE ASSESSEE HA S TO BE ACCEPTED. WE ACCORDINGLY HOLD THAT THE FMV AS ON 1/4/ 1981 AS DE CLARED BY THE ASSESSEE SHOULD BE ACCEPTED FOR THE PURPOSE OF COMPUTING CAPITAL GA IN. 9. THE OTHER ISSUE THAT ARISES FOR CONSIDERATION IN THIS APPEAL IS WITH REGARD TO THE CLAIM OF THE ASSESSEE FOR EXEMPTION UNDER SECTION 5 4 OF THE ACT. WE HAVE ALREADY ITA NO.1726/MUM/2009(A.Y. 2005-06) 6 SEEN IN THE COMPUTATION OF CAPITAL GAIN AS GIVEN BY THE ASSESSEE THAT THE ASSESSEE HAS CLAIMED INVESTMENT IN PURCHASE OF NEW RESIDENTI AL PROPERTY AT RS. 98 87 215/- AS EXEMPT U/S.54 OF THE ACT. THE BREAKUP OF THE COST OF PURCHASE OF THE RESIDENTIAL HOUSE IS AS FOLLOWS: S.NO. PARTICULARS AMOUNT (RS.) 1. COST OF BUNGLOW 80 00 000 2. STAMP DUTY 4 80 000 3. REGISTRATION CHARGES 30 000 4. BROKERAGE 80 000 5. COST OF IMPROVEMENT BY WAY OF CIVIL REPAIRS PAINTING ETC. 12 97 215 TOTAL 98 87 215 10. THE DISPUTE BETWEEN ASSESSEE AND THE DEPARTMEN T IS ONLY WITH REGARD TO THE COST OF IMPROVING BY WAY OF CIVIL REPAIRS PAINTING ETC. AT RS. 12 97 215/- CAN BE CLAIMED AS A DEDUCTION U/S.54 OF THE ACT OR NOT.. IN THIS REGARD IT IS NECESSARY TO SET OUT THE PROVISION OF SECTION 54 UNDER WHICH THE EXE MPTION IS CLAIMED BY THE ASSESSEE. THE SAME IN SO FAR AS IT IS NECESSARY FO R THE PRESENT APPEAL IS AS FOLLOWS: 54. (1)SUBJECT TO THE PROVISIONS OF SUB-SECTION (2) WH ERE IN THE CASE OF AN ASSESSEE BEING AN INDIVIDUAL OR A HINDU UNDIV IDED FAMILY] THE CAPITAL GAIN ARISES FROM THE TRANSFER OF A LONG-TER M CAPITAL ASSET BEING BUILDINGS OR LANDS APPURTENANT THERETO AND BEING A RESIDENTIAL HOUSE THE INCOME OF WHICH IS CHARGEABLE UNDER THE HEAD I NCOME FROM HOUSE PROPERTY (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 TRANSFER TOOK PLACE PURCHASED OR HAS WITHIN A PERIOD OF THREE YEARS AFTER THAT DATE CONSTRUCTED A RESIDENTIAL HOUSE THEN] INSTEAD OF THE CAPITAL GAIN BEING CHARGED TO INCOME-TAX AS INCOME OF THE PREVIOUS YEAR IN WHICH THE TRANSFER TOOK PLA CE IT SHALL BE DEALT WITH IN ACCORDANCE WITH THE FOLLOWING PROVISIONS OF THIS SECTION THAT IS TO SAY ( I ) IF THE AMOUNT OF 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 DI FFERENCE BETWEEN 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 ITA NO.1726/MUM/2009(A.Y. 2005-06) 7 ASSET ANY CAPITAL GAIN ARISING FROM ITS TRANSFER WI THIN A PERIOD OF THREE YEARS OF 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 OF THE NEW ASSET THE CAPITAL GAIN SHALL N OT BE CHARGED UNDER SECTION 45 ; AND FOR THE PURPOSE OF COMPUTING IN RESPECT OF THE NEW ASSET ANY CAPITAL GAIN ARISING FROM ITS TRA NSFER WITHIN A PERIOD OF THREE YEARS OF ITS PURCHASE OR CONSTRUCTI ON AS THE CASE MAY BE THE COST SHALL BE REDUCED BY THE AMOUNT OF THE CAPITAL GAIN. (2) THE AMOUNT OF THE CAPITAL GAIN WHICH IS NOT APP ROPRIATED BY THE ASSESSEE TOWARDS THE PURCHASE OF THE NEW ASSET MADE WITHIN ONE YEAR BEFORE THE DATE ON WHICH THE TRANSFER OF T HE ORIGINAL ASSET TOOK PLACE OR WHICH IS NOT UTILISED BY HIM F OR 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 M ADE 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 NOTIFIC ATION IN THE OFFICIAL GAZETTE FRAME IN THIS BEHALF AND SUCH RETURN SHALL BE ACCOMPANIED BY PROOF OF SUCH DEPOSIT; AND FOR T HE PURPOSES OF SUB-SECTION (1) THE AMOUNT IF ANY ALREADY UTI LISED BY THE ASSESSEE FOR THE PURCHASE OR CONSTRUCTION OF THE NE W ASSET TOGETHER WITH THE AMOUNT SO DEPOSITED SHALL BE DEEM ED TO BE THE COST OF THE NEW ASSET : PROVIDED THAT IF THE AMOUNT DEPOSITED UNDER THIS SUB-SECTIO N IS NOT UTILISED WHOLLY OR PARTLY FOR THE PURCHASE OR C ONSTRUCTION OF THE NEW ASSET WITHIN THE PERIOD SPECIFIED IN SUB-SE CTION (1) THEN ( I ) THE AMOUNT NOT SO UTILISED SHALL BE CHARGED UNDER SECTION 45 AS THE INCOME OF THE PREVIOUS YEAR IN WHICH THE PE RIOD OF THREE YEARS FROM THE DATE OF THE TRANSFER OF THE OR IGINAL ASSET EXPIRES; AND ( II ) THE ASSESSEE SHALL BE ENTITLED TO WITHDRAW SUCH A MOUNT IN ACCORDANCE WITH THE SCHEME AFORESAID. 11. IN THE PRESENT CASE CLAIM OF EXEMPTION IS BASED ON PURCHASE OF A RESIDENTIAL HOUSE. THE ASSESSEE PURCHASED A RESIDENTIAL HOUSE AT KHANDALA AND CLAIMED ITA NO.1726/MUM/2009(A.Y. 2005-06) 8 EXEMPTION U/S.54 OF THE ACT ON THE GROUND THAT THE ASSESSEE HAS UTILIZED THE CAPITAL GAIN IN PURCHASE OF A RESIDENTIAL HOUSE. THE CASE OF THE ASSESSING OFFICER IS THAT THE EXTENT OF RS. 12 97 215/- VIZ. EXPENDITURE INCURRE D BY THE ASSESSEE FOR THE PURPOSE OF BUILDING A COMPOUND WALL AND ALSO FOR CARRYING O UT ELECTRICAL WORKS CIVIL WORK ETC. ON THE BUNGALOW PURCHASED BY THE ASSESSEE AT KHANDA LA DEDUCTION CANNOT BE ALLOWED BECAUSE THESE WERE EXPENSES INCURRED AFTER PURCHASE OF THE PROPERTY AT KHANDALA AND TO THIS EXTENT IT CANNOT BE SAID THAT THE CAPITAL GAIN WAS INVESTED IN PURCHASING A RESIDENTIAL HOUSE. ACCORDING TO THE AS SESSEE HE HAD TO INCUR THESE EXPENSES PRIOR TO HIS OCCUPYING THE NEW HOUSE AND THEREFORE SHOULD BE CONSIDERED AS PART OF THE COST OF PURCHASE OF THE NEW ASSET. ACCORDING TO THE ASSESSING OFFICER THESE EXPENSES WERE INCURRED AFTER PURCHASE OF THE RESIDENTIAL HOUSE AND WERE IN THE NATURE OF IMPROVEMENT TO THE ASSETS PURCHASED AND T HEY COULD BE ADDED TO THE COST OF ACQUISITION OF THE NEW ASSET. AS AND WHEN THE ASSESSEE SELLS THE NEW ASSET IN FUTURE THIS FORM PART OF THE COST OF ACQUISITION OF THE NEW ASSET AND THEREFORE IT CANNOT BE CONSIDERED AS THE COST PAID FOR PURCHASE OF THE PROPERTY. 12. DURING THE COURSE OF ASSESSMENT THE ASSESSEE A LSO SUBMITTED THAT IT HAD INCURRED AN EXPENDITURE TO THE TUNE OF RS. 23.50 LA CS FOR CONSTRUCTION OF NEW PROPERTY AT KHANDALA AND OUT OF THATRS.12.98 LACS WAS INCURR ED TOWARDS BUILDING COMPOUND WALL AND ONLY TO THIS EXTENT THE ASSESSEE HAD CLAI MED EXEMPTION UNDER SECTION 54 OF THE ACT. THE ASSESSING OFFICER FOUND THIS PLEA TO BE CONTRARY TO THE ORIGINAL CLAIM OF THE ASSESSEE THAT RS. 12.98 LACS WAS INCURRED TO MA KE THE HOUSE PURCHASED HABITABLE. FOR ALL THE ABOVE REASONS THE ASSESSING OFFICER DID NOT ACCEPT THE CLAIM OF THE ASSESSEE FOR EXEMPTION UNDER SECTION 54 OF THE I.T. ACT IN RESPECT OF A SUM OF RS. 12 97 215/-. 13. ON APPEAL BY THE ASSESSEE THE CIT(A) CONFIRMED THE ORDER OF THE ASSESSING OFFICER. ITA NO.1726/MUM/2009(A.Y. 2005-06) 9 14. BEFORE US LD. COUNSEL FOR THE ASSESSEE RELIED O N THE DECISION OF THE MUMBAI BENCH OF ITAT IN THE CASE OF MRS. GULSHANBANU R. MU KHI VS. JCIT 83 ITD 649(MUM). IN THAT DECISION HONBLE ITAT HAD HELD THAT SECTION 54 USED THE EXPRESSION COST OF NEW HOUSE AND THEREFORE THE SAID EXPRESSION SIGNIFIES NOT ONLY THE PURCHASE PRICE BUT WILL ALSO INCLUDE OTHER NECE SSARY EXPENDITURE TO MAKE THE RESIDENTIAL HOUSE HABITABLE. 15. THE LD. D.R ON THE OTHER HAND RELIED ON THE DEC ISION OF THE MUMBAI BENCH OF ITAT IN THE CASE OF MRS. N. SHIRIN PETIGARA . VS. 3 RD ITO 28 TTJ 324(BOM) WHEREIN REPAIRS EFFECT AFTER ACQUISITION WAS HELD TO BE NOT THE PRICE PAID FOR PURCHASE OF A NEW ASSET AND THEREFORE THE EXEMPTION UNDER SECTION 5 4 WAS NOT ALLOWED. IN THIS CASE AS A FACT IT WAS FOUND THAT THE FLAT WHICH WAS PURC HASED AS AN INVESTMENT IN A NEW HOUSE TO CLAIM EXEMPTION UNDER SECTION 54 WAS IN GO OD CONDITION AND WAS NOT IN INHABITABLE CONDITION. 16. FROM A PERUSAL OF THE DECISION RELIED UPON BY THE LD. D.R AS WELL AS LD. A.R IT TRANSPIRES THAT THE EXEMPTION UNDER SECTION 54 WILL BE AVAILABLE TO THE EXTENT OF THE COST OF THE NEW ASSET. THE COST OF THE NEW ASSET WOULD ALSO INCLUDE EXPENSES NECESSARY TO MAKE THE HOUSE HABITABLE. IT THEREFO RE BECOMES A QUESTION OF FACT AS TO WHETHER THE EXPENDITURE OF RS. 12 97 215/- CLAIM ED BY THE ASSESSEE WAS EXPENSES INCURRED FOR THE PURPOSE OF MAKING HOUSE H ABITABLE. IN THIS REGARD WE FIND THE DETAILS OF THE EXPENSES INCURRED ARE AS FOLLOWS : SR.NO. NAME OF THE PARTY NATURE OF EXPENSE AMOUNT ( RS.) 1. WILSON ELECTRICAL WORKS ELECTRICAL WORKS 3 06 740 2. LEO ELECTRIC WORKS -DO- 1 00 005 3. -DO- -DO- 50 000 4. PRASAD & COMPANY PAINTING 2 69 231 5. M/S. M.A.BROTHERS CIVIL WORK 24 000 6. ANGEL STEELS STEEL 29 823 7. DARA MISTRY & ASSOCIATES CIVIL WORK 2 32 000 8. AMBIKA STEEL COMPOUND GATE ETC. 40 000 9. SAMIR CERAMICS PVT. LTD. CIVIL WORK 75 398 10. -DO- -DO- 69 113 11. -DO- -DO- 31 835 12. HUSSAIN & SONS STEEL 14 030 ITA NO.1726/MUM/2009(A.Y. 2005-06) 10 13. FAKHRI HARDWARE CEMENT 6 231 14. -DO- -DO- 13 567 15. -DO- -DO- 31 500 16. -DO- -DO- 3 254 17. OTHERS OTHERS 488 TOTAL 12 97 215 16. IT IS THE CLAIM OF THE ASSESSEE THAT THE EXPENS ES WERE INCURRED FOR CONSTRUCTION OF COMPOUND WALL AND CARRYING OUT SOME ELECTRICAL W ORKS. IT WAS A SPECIFIC PLEA OF THE ASSESSEE THAT THESE EXPENSES WERE NECESSARY TO ENSURE THAT THE PREMISES IS CONGENIAL AND SUITABLE TO LIVE IN. THE ASSESSING O FFICER HAS GIVEN FOLLOWING REASONS FOR NOT ACCEPTING THE STAND OF THE ASSESSEE: 4.4.7 THE ASSESSEE HAS SUBMITTED VIDE HIS REPRESE NTATIVES LATEST LETTER DATED 20/12/2007 THAT THE AMOUNT OF RS. 12.98 LAKHS HAD B EEN INCURRED TOWARDS BUILDING OF COMPOUND WALL SURROUNDING THE BUNGALOW TO MAKE IT HABITABLE. THE SUBMISSIONS MADE ON BEHALF OF THE ASSESSEE IN THIS REGARD ARE ONCE AGAIN REPRODUCED VERBATIM BELOW:- 4. ASSESSEE HAS INCURRED VARIOUS EXPENSES TOWARDS COST OF IMPROVEMENT TO THE TUNE OF RS. 23.50 LAKHS APPROX F OR THE NEW HOUSE PROPERTY AT KHANDALA. OUT OF WHICH RS. 12.98 LAKHS HAS BEEN TAKEN TOWARDS COST OF KHANDALA PROPERTY AS DEDUCTION UNDE R SECTION 54. THE AMOUNT HAS BEEN INCURRED TOWARDS BUILDING OF COMPOU ND WALL SURROUNDING THE BUNGALOW TO MAKE HABITABLE. WHEREA S OTHER EXPENSES INCURRED TOWARDS FURNITURES & ELECTRICAL ETC. HAVE NOT BEEN CONSIDERED FOR DEDUCTION U/S. 54. HOWEVER IT WOULD BE SEEN THAT AS PER THE DETAILS O F EXPENDITURE FURNISHED BY THE ASSESSEE VIDE HIS REPRESENTATIVES LETTER DATE D 7/12/2007 AND AS TABULATED IN PARA 4.4.2 HEREINABOVE THE EXPENDITUR E INCURRED WAS MAINLY ON ELECTRICAL WORKS TO THE EXTENT OF RS.4 56 745/-. FURTHER AS PER THE SAID DETAILS AN AMOUNT OF RS. 2 69 231/- WAS SPENT FOR PAINTING A TOTAL AMOUNT OF RS. 2 00 346/- WAS SPENT FOR CIVIL WORK PURCHASE OF TANK SANITARY WARE TILES ETC. AN AMOUNT OF RS. 43 853 HAD BEEN INCURRED TOWA RDS PURCHASE OF STAINLESS STEEL ROD AND M.S. ANGLE AND AN AMOUNT OF RS.54 552 /- FOR PURCHASE OF CEMENT. AS PER THE BREAK UP OF THE EXPENSES AND CO PIES OF BILLS FURNISHED BY THE ASSESSEE ONLY AN AMOUNT OF RS. 2 32 000/- PAID TO M/S. DARA MISTRY & ASSOCIATES TOWARDS LABOUR CHARGES FOR CONSTRUCTION OF COMPOUND WALL AND AN AMOUNT OF RS. 40 000/- PAID TO M/S. AMBIKA STEEL WO RKS FOR PURCHASE OF COMPOUND GATE HAD BEEN INCURRED FOR CONSTRUCTION OF COMPOUND WALL. EVEN THE ENTIRE EXPENDITURE INCURRED FOR PURCHASE OF CEM ENT ALSO CANNOT BE CONSIDERED AS EXPENDITURE INCURRED FOR CONSTRUCTION OF COMPOUND WALL AS THE ITA NO.1726/MUM/2009(A.Y. 2005-06) 11 ASSESSEE HAD PURCHASED TILES SANITARY WARE ETC. AN D THEREFORE CEMENT MUST HAVE BEEN USED FOR FIXING THE SAME ALSO. THUS THE ASSESSEES CONTENTION THAT THE ENTIRE EXPENSES OF RS. 12.98 LAKHS HAD BEEN INC URRED FOR CONSTRUCTION OF COMPOUND WALL FOR THE NEW RESIDENTIAL HOUSE PURCHA SED IS FALSE AND IT IS CLEAR THAT THE ASSESSEE HAS NOW TAKEN THIS PLEA REALIZING THAT THIS CLAIM OF EXEMPTION UNDER SECTION 54 FOR THE EXPENDITURE WILL NOT BE ALLOWED. THE ASSESSEES CONTRADICTORY STATEMENTS REGARDING THE E XPENDITURE ITSELF SHOW THAT THE EXPENDITURE HAD NOT BEEN INCURRED FOR MAKING T HE RESIDENTIAL HOUSE HABITABLE. 4.4.8. EVEN THE EXPENSES INCURRED FOR CONSTRUCTION OF THE COMPOUND WALL CANNOT BE CONSIDERED AS EXPENDITURE INCURRED FOR MA KING THE NEW RESIDENTIAL HOUSE HABITABLE AS MERELY BECAUSE A HOUSE IS NO SU RROUNDED BY A COMPOUND WALL IT CANNOT BE SAID THAT THE HOUSE IS NOT HABITABLE. THE ASSESSEE HAS SOUGHT TO JUSTIFY THIS CONTENTION BY S TATING THAT HE WAS STAYING ALONE AND THEREFORE FROM SAFETY POINT OF VIEW CO MPOUND WALL AROUND THE BUNGALOW WAS A MUST TO MAKE IT HABITABLE. THE ASSE SSEE IS FREE TO SPEND ANY AMOUNT TO ENSURE HIS SAFETY BUT HE CANNOT STRE TCH THE MEANING OF UNHABITABILITY SO AS TO CLAIM EXEMPTION UNDER SEC .54 OF THE I.T. ACT FOR ANY EXPENDITURE INCURRED ON THE GROUND OF SAFETY REL YING ON THE DECISION OF THE HONBLE ITAT. THE EXTENT OF SAFETY REQUIRED BY O NE INDIVIDUAL WILL VARY FROM THAT IN THE CASE OF ANOTHER INDIVIDUAL AND EACH IN DIVIDUAL MAY SPENT MONEY TO ENSURE HIS/HER SAFETY DEPENDING ON HIS FINANCIAL CA PACITY BUT BENEFIT UNDER THE I.T. ACT CANNOT BE ALLOWED FOR ALL SUCH EXPENSE S. 18. WE ARE OF THE VIEW THAT THE STAND OF THE ASSES SING OFFICER IN THIS REGARD IS ACCEPTABLE. THE ASSESSEE HAS FAILED TO ESTABLISH THAT NEW RESIDENTIAL HOUSE WAS NOT HABITABLE AND THE EXPENSES IN QUESTION WERE INC URRED FOR THE PURPOSE OF MAKING IT HABITABLE. IN THAT VIEW OF THE MATTER WE CONFIRM THE ORDER OF THE CIT(A) ON THIS ISSUE. 19. IN THE RESULT THE APPEAL BY THE ASSESSEE IS PA RTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 25 TH DAY OF FEBRUARY 2011. SD/- SD/- (J.SUDHAKAR REDDY) (N.V.VASUDEVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI DATED. 25 TH FEB.2011 ITA NO.1726/MUM/2009(A.Y. 2005-06) 12 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3 . THE CIT CITY CONCERNED 4. THE CIT(A)- CONCERNED 5. THE D.RE BENCH. (TRUE COPY) BY ORDER ASST. REGISTRAR I TAT MUMBAI BENCHES MUMBAI. VM. ITA NO.1726/MUM/2009(A.Y. 2005-06) 13 DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 17/2/11 SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR 18/2/11 SR.PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7. FILE SENT TO THE BENCH CLERK SR.PS/PS 8 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER