PRINCIPAL COMMISSIONER OF INCOME TAX & ORS. vs. AKSHAY SOBTI & ORS.

HIGH COURT OF DELHI

VIPIN SANGHI & SANJEEV NARULA, JJ.
ITA 991/2019, 992/2019, 996/2019
19th December, 2019
(2019) 106 CCH 352 DelHC
Legislation referred to
Section 54, 54EC
Case pertains to
Asst. Year 2012-13
Decision in favour of
Assessee

Capital Gains—Exemption on long term capital gains for the sale of a residential
property—Assessee filed return of income which was selected for scrutiny—During
assessment proceeding, AO noted that assessee had declared income including
LTCGs from sale of property which was purchased in FY 2001-02, as per sale deed
—Assessee claimed deduction u/s 54 for investment in a new house property
‘Magnolias DLF Golf Links’ as per sale agreement—Deductions were also claimed
u/s 54EC—Assessee submitted a detailed computation of capital gains, showing
payment to DLF Magnolias up to 31.03.2012, towards cost of property and further
payment towards bank interest and loans and cost of improvement on said
property—CIT(A) deleted disallowance made by AO—ITAT confirmed order of
CIT(A)—Held, assessee had sold property at Jor Bagh on 21.12.2011—On said
sale, assessee had claimed deduction of capital gains u/s 54—Assessee was
required to purchase a residential house property either one year before, or within
two years after date of transfer of original asset; or within a period of three years
after date he was required to construct a residential house—CBDT in its circulars
No. 672 dated 16.12.1993 had made it clear that earlier circular No. 471 dated
15.10.1986 in which it was stated that acquisition of flat through allotment by
DDA had to be treated as a construction of flat, would apply to cooperative
societies and other institutions—Tax authorities had relied upon said circular and
held that builder would fall in category of other institutions and, therefore,
booking of flat with builder had to be treated as construction of flat by assessee—
In accordance with said agreement, assessee was to make payment in
installments and builder was to construct an unfinished bare shell flat for finishing
by buyers—Possession was granted on 30.03.2013—Lower tax authorities after
examining terms of agreement, occupation certificate, and other letters-offer to
finalize details of interiors, came to a conclusion that assessee had booked a semi
furnished flat with builder, namely, DLF Universal Ltd. in residential group housing
complex named as Magnolias DLF Golf Links—Accordingly, assessee had a window
of three years period from 21.12.2011 till 21.12.2014 to construct a house
property, calculated from date of transfer of original asset—Assessee had claimed
deduction on amount invested till due date of filing of return u/s 139(1)—
Provision in question was a beneficial provision for assessees, who replace
original long-term capital asset by a new one—Revenue’s ground dismissed.

Held

The assessee had sold the property at Jor Bagh on 21.12.2011. On the said sale, the
assessee has claimed deduction of capital gains under Section 54 of the Act. The assessee
was required to purchase a residential house property either one year before, or within two
years after the date of transfer of original asset; or within a period of three years after the
date he was required to construct a residential house. CBDT in its circulars No. 672 dated
16.12.1993 has made it clear that the earlier circular No. 471 dated 15.10.1986 in which it
was stated that acquisition of flat through allotment by DDA has to be treated as a
construction of flat, would apply to cooperative societies and other institutions. The tax
authorities have relied upon the said circular and held that the builder would fall in the
category of other institutions and, therefore, booking of the flat with the builder has to be
treated as construction of flat by the assessee. In accordance with the said agreement, the
assessee was to make payment in installments and the builder was to construct an
unfinished bare shell flat for finishing by the buyers. The possession was granted on
30.03.2013. The lower tax authorities after examining the terms of the agreement, the
occupation certificate, and the other letters-offer to finalize the details of interiors, have
come to a conclusion that the assessee had booked a semi furnished flat with the builder,
namely, DLF Universal Ltd. in the residential group housing complex named as Magnolias
DLF Golf Links. Accordingly, the assessee had a window of three years period from
21.12.2011 till 21.12.2014 to construct a house property, calculated from the date of
transfer of original asset. The assessee has claimed deduction on amount invested till the
due date of filing of return under Section 139(1) of the Income Tax Act. The provision in
question is a beneficial provision for assessees, who replace the original long-term capital
asset by a new one.
(Para 24)

It cannot be said in the facts of the present case that the deduction claimed for the
construction were not relatable to the transaction of sale of the Jor Bagh property which
resulted in income by way of capital gains. There is no ground urged by Revenue before CIT
(A), or before the ITAT, that the expenditure was not connected with the sale transactions.
The AO had treated the date of acquisition of the residential property as 10.02.2006 and
denied the exemption under Section 54 of the Act, which was not the correct approach.
(para 25)

Conclusion:
Booking of bare shell of a flat is a construction of house property and not purchase,
therefore, the date of completion of construction is to be looked into which is as per
provision of section 54 of the LT. Act.

In favour of:
Assessee

Capital Gains—Capital gain not to be charged on investment in certain bonds—

Assessee claimed deduction u/s 54EC amounting to Rs.1,00,00,000/-—AO made
disallowance of Rs. 50,00,000/-—CIT(A) allowed assessee’s ground—Held, High
Court of Madras in CIT vs. Coromandal Industries Ltd. held that the time limit for
investment is six months from date of transfer and even if such investment falls
under two financial years, benefit claimed by assessee cannot be denied—It would
have made a difference, if the restriction on investment in bonds to
Rs.50,00,000/- is incorporated in Section 54EC(1) of the Act itself—Ambiguity has
been removed by legislature with effect from 1.4.2015 in relation to the
assessment year 2015-16 and the subsequent years—Revenue’s ground dismissed.
Revenue does not require our consideration.

Held:

With respect to the deduction under Section 54EC of the Act being restricted to Rs.
50,00,000/- as against Rs. 1,00,00,000/-, the said question has already been answered in
the judgment relied upon by the Tribunal to uphold the deletion by CIT (A). The High Court
of Madras in CIT vs. Coromandal Industries Ltd. held that the legislature has chosen to
remove the ambiguity in the proviso to Section 54EC(1) of the Act by inserting a second
proviso with effect from 1.4.2015.The memorandum explaining the provisions in the Finance
(No. 2) Bill, 2014 also states that the same will be applicable from 1.4.2015 in relation to
assessment year 2015-16 and the subsequent years. The intention of the legislature
probably appears to be that this amendment should be for the assessment year 2015-2016
to avoid unwanted litigations of the previous years. Even otherwise, we do not wish to read
anything more into the first proviso to Section 54EC(1) of the Act, as it stood in relation to
the assessees. In any event, from a reading of Section 54EC(1) and the first proviso, it is
clear that the time limit for investment is six months from the date of transfer and even if
such investment falls under two financial years, the benefit claimed by the assessee cannot
be denied. It would have made a difference, if the restriction on the investment in bonds to
Rs.50,00,000/- is incorporated in Section 54EC(1) of the Act itself. However, the ambiguity
has been removed by the legislature with effect from 1.4.2015 in relation to the assessment
year 2015-16 and the subsequent years.

(para 25)

In view of the aforesaid decision, we are of the opinion that the question urged by the
Revenue does not require our consideration.
(para 26)

In favour of
Assessee
Cases referred to :
Gulshan Malik Vs. CIT in ITA no. 55 of 2014
CIT vs R.L.Sood [2008] 109 taxman 227/245 ITR 727 (Delhi)
CIT Vs J.R. Sobramanya Bhatt (1887) 165 ITR 571 (Karn)
CIT vs J.H. Gotla [1985] 156 ITR 323 (SC)
D. Moreover in CIT vs Bharati C Kothari (2000) 244ITR 352
CIT vs. Coromandal Industries Ltd. (2015) 370 ITR 586 (Madras)
CIT v. Bharti Mishra (2014) 265 CTR 374 (Delhi)
CIT v. Kuldeep Singh (2014) 270 CTR 561(Delhi)
CIT v. C. Jaichander (2015) 370 ITR 579 (Madras)
CIT v. Bharti Mishra [2014] 265 CTR 374 (Delhi)
Counsel appeared

Ajit Sharma, Senior Standing Counsel with Adeeba Mujahid, Advocate for the Petitioner.:
Salil Kapoor, Shivansh Pandya, Sumit Lalchandani and Ananya Kapoor, Advocates for the
Respondent

SANJEEV NARULA, J. (ORAL):

Caveat No. 1219/2019 in ITA 992/2019

1. Learned counsel for the Respondent/caveator has appeared.

2. Accordingly, the caveat stands discharged.

Caveat No. 1227/2019 in ITA 996/2019

3. Learned counsel for the Respondent/caveator has appeared.

4. Accordingly, the caveat stands discharged.

C.M. No. 53570/2019 (delay) in ITA 991/2019

5. By this application the applicant seeks condonation of delay of 39 days in re-filing the
application. For the reasons stated in the application, the delay is condoned.
6. The application stands disposed of in the aforesaid terms.

C.M. No. 53572/2019 (delay) in ITA 992/2019

7. By this application the applicant seeks condonation of delay of 34 days in re-filing the
application. For the reasons stated in the application, the delay is condoned.

8. The application stands disposed of in the aforesaid terms.

C.M. No. 53742/2019 (delay) in ITA 996/2019

9. By this application the applicant seeks condonation of delay of 39 days in re-filing the
application. For the reasons stated in the application, the delay is condoned.

10. The application stands disposed of in the aforesaid terms.

ITA 991/2019, ITA 992/2019 & ITA 996/2019

11. The present appeals under Section 260A of the Income Tax Act, 1961 (hereinafter
referred to as “the Act”) emanate from the orders of ITAT in ITA No. 5900/Del/2015 and
ITA No. 5901/Del/2015, both dated 10.05.2019 and ITA No. 5899/Del/2015 dated
15.05.2019 dismissing the appeals of the Revenue, and upholding the orders of the CIT (A)
allowing deductions under Section 54 and 54EC of the Act, consequently deleting the
additions made by the Assessing Officer (AO).

12. Though separate assessment orders were framed under Section 143(3) of the Act in
respect of each assessee, however since the issues involved were common and overlapping,
the same came to be disposed of by way of a consolidated order passed by CIT (A). The
appeal filed by the Revenue against the said order resulted in one common order disposing
of the ITA No. 5900/Del/2015 and ITA No. 5901/Del/2015 dated 10.05.2019 in respect of
assesses - Akshay Sobti and Pradeep Sobti in ITA 991/2019 and ITA 992/2019 respectively.
As regards to assessee - Seema Sobti (Respondent in ITA 992/2019), the appeal of the
Revenue was decided by way of a separate order dated 15.05.2019 in ITA No.
5899/Del/2015.

13. Since the issues involved in all the appeals are in respect of the same Assessment Year
(AY) i.e. 2012-13 are common and interconnected, the grounds of appeal are also nearly
identical, except for difference in figures, the same were heard together and are being
disposed of by this common order. For the sake of convenience, the facts in the case of ITA
992/2019 are being noted and discussed extensively, and the decision would apply mutatis
mutandis in all the appeals.

Brief Facts [ITA 992/20191

14. The facts in brief giving rise to the present appeal are that the assessee is an individual,
earning income from house property, business and profession, capital gains and other
sources. He filed his return of income for AY 2012-13 on 31.10.2012, declaring total income
of Rs. 8,05,34,659/-, including long term capital gains from sale of property at Jor Bagh,
New Delhi on 21.12.2011 for a sale consideration of Rs. 13 crores. The said property was
purchased in Financial Year (FY) 2001-02, as per sale deed dated 19.10.2001, for Rs.
36,16,000/-. After indexation, the cost of acquisition was claimed to be Rs. 66,63,286/-,
resulting in capital gain of Rs. 12,33,36,714/- against which, the assessee claimed
deduction under Section 54 of the Act for investment in a new house property ‘Magnolias
DLF Golf Links’ as per sale agreement dated 10.02.2006. Deductions were also claimed
under Section 54EC of the Act. During the course of assessment proceedings, the assessee
submitted a detailed computation of capital gains, showing payment of Rs. 2,88,80,619/- to
DLF Magnolias up to 31.03.2012, towards cost of the property and further payment of Rs.
1,02,16,598/- towards bank interest and loans and cost of improvement on the above said
property.

15. The case of the assessee was selected for scrutiny under CASS. Notice under Section
143 (2) of the Act was served upon the assessee followed by a notice under Section 142(1)
of the Act, along with a questionnaire issued on 28.08.2014.

16. The assessee complied with the said notice and furnished the requisite details. The AO
examined the records and books of account and relying upon the judgment of this Court in
the case of Gulshan Malik vs. CIT in ITA No. 55/2014 and CIT v. R.L. Sood (2008) 245
ITR 727 (Delhi) framed the assessment under Section 143(3) of the Act. He made
disallowance of deduction under Section 54 of the Act on the ground that the assessee
entered into an agreement dated 10.02.2006 and the said date of the agreement is to be
treated as date of acquisition, which falls beyond the one year period provided under
Section 54 of the Act and is also prior to the date of transfer. As regards the deduction
claimed by the assessee under Section 54EC of the Act amounting to Rs.1,00,00,000/-, the
AO made disallowance of Rs. 50,00,000/-. Further, AO made addition of Rs.14,07,474/- on
account of suppression of maintenance charges under the head “income from house
property” received from rented property.

17. The assessee filed an appeal against the assessment orders before CIT (A), and the
same was allowed vide order dated 21.08.2015 and the additions made by the AO were
deleted. The CIT (A) observed that the benefit under Section 54 of the Act required an
assessee to purchase a residential house property either one year before or within two
years after the date of transfer of long term capital asset; or if an assessee within a period
of three years after the said date has constructed a residential house. Relying upon the
CBDT circular No. 672 dated 16.12.1993, it was held that the assessee had booked a semi
furnished flat at Magnolias DLF Golf Links. In terms of Clause 1.1 of the said agreement, the
assessee was to make payments in installments and the builder was to construct the
unfinished bare shell of a flat. Under these circumstances, the CIT (A) considered the
agreement to be a case of construction of new residential house and not purchase of a flat.
It was further observed that since the construction has been completed within three years
of the sale of original asset, a fact accepted by the AO, the assessee was entitled to relief
under Section 54 of the Act and resultantly, the disallowance of Rs. 4,01,93,262/- was
deleted.

18. The relevant portion of the order of the CIT (A) reads as under:

“6. Ground no.-4 relates to '"disallowance of deduction u/s.54 to the extent of Rs.
4,00,97,217/- (A.No.496/14-15), 4,10,45,578/- (A.No.494/14-15) and
Rs.4,01,93,262/- (A.No.495/14-15) to the returned income of Rs.8,05,34,650
(A.No.496/14-15), Rs.2,75,04,910/- (A.No.495/14-15) and Rs. 72,38,440/-
(A.No.494/14-15). The fact of the case is that the appellant declared long term
capital gain of Rs. 52087347/- (A.Nos.494/14-15) Rs.12,33,36,714/- (A.No.496/14-
15) and Rs.71665302/- (A.No.495/14-15) from the sale of property at 146, Jorbagh,
New Delhi on 21.12.2011 on which he claimed deduction u/s 54 amounting to
Rs.4,00,97,217/- A.No.496/14- 15), 4,10,45,578/- (A.Nb.494/14-15) and
Rs.4,01,93,262/- A.No.495/14-15). However, the AO disallowed the claim on the
grounds that the appellant had entered into an agreement dated 10.02.2006 and
therefore the date of agreement be treated as the date of acquisition, which falls
beyond the period of one year prior to the date of transfer prescribed under section
54 of the Income-tax Act, following the judgment of Honorable Delhi High Court in
the case of Gulshan Malik Vs. CIT in ITA no. 55 of 2014 and CIT vs R.L.Sood [2008]
109 taxman 227/245 ITR 727 (Delhi), he disallowed the claim of the appellant.
According to Assessing officer, the appellant could have purchased a house property
between 28.12.2010 to 28.10.2011 in order to claim deduction under section 54.
Since the appellant invested in the residential House property namely Dlf Magnolia
way back in F.Y. 2005-06 which is clearly outside the time period mentioned in
section 54 of the Income-tax Act, it does not fit in case of exemption under section
54. The Assessing officer placed reliance on the judgement of Honorable High Court
at Delhi in the case of Gulshan Malik Vs. CIT in ITA no. 55 of 2014 and CIT vs R. L.
Sood [2008] 109 taxman 227/245 ITR 727 (Delhi). However, the appellant
submitted that in order to avail the benefit under section 54 of Income-tax Act he is
required to purchase a residential house property either one year before or within
two year after the date of transfer of original asset; or within a period of three years
after that date" he is required to construct a residential house. Therefore, for proper
application 'of this section it has to be seen whether in the instant case is it a
purchase or a construction?

It has been clarified by the CBDT in circular No.672 dated 16.12.1993 in which it has
been made clear that the earlier circular No. 471 dated 15.10.1986 in which it was
stated that acquisition of flat through allotment by DDA has to be treated as a
construction of flat would apply to co-operative societies- and other institutions. The
builder would fall in the category of other institutions as held by Mumbai Bench of
Tribunal in the case Smt. Sunder Kaur Sujan Singh Gadh (supra) and therefore
booking of the flat with the builder has to be treated as construction of flat by the
appellant.

Thus, in the present case, the period of three years would apply for construction of
new house from the date of transfer of the original asset. The above circulars are
binding on the revenue authorities under s. 119 of the Act. He referred the decision
rendered by the Honorable High Court of Bombay In- the case of Mrs. Hilla J. B.
Wadia (216 ITR 376), wherein the Honorable High Court has held that n is a case of
"Construction". Reliance was placed on the judgment of Honorable Karnataka High
Court in the case of CIT Vs J.R. Sobramanya Bhatt (1887) 165 ITR 571 (Karn),
wherein it has been held that it is immaterial whether the construction of the new
house was started before the date of transfer, it should be completed after the date
of transfer of the original house.

In the present case, he had booked a semi finished flat with the builder, namely DLF
Universal Limited in the residential group housing complex named as Magnolias DLF
Golf Links) and as per agreement, he was to make payment in installments and the
builder was to construct the unfinished bare shell of flat for finishing by the buyers
on their own to make it liveable (having specifications set out in Annexure-V) as per
clause 10.1 of the said agreement. It .is -also pertinent to mention that Builder
Company offered vide letter dated 30.12.2011 (copy enclosed) that the Occupation
certificate has been received from the Competent Authorities and the six months
period for completing the interiors, interms of agreement shall commence from
01.01.2012 and is to be completed before 30.06.2012. Builder Company's letter
dated 20.03.2012 and 20.01.2012 (Copies enclosed) offered to finalise the details of
interiors and extended the time for completion of interior to 30.09.2012 and finally
possession was granted on 30.10.2013. It has therefore to be considered as a case
of construction of new residential house and not purchase of a flat. Since the flat has
been allotted to the appellant by the builder 'who would fall in the category of other
institutions mentioned in- the circulars, it has to be taken as a case of construction of
the residential flat and not as a purchase of a residential flat. Therefore, he had time
window of three years period available to him commencing from 21.12.2011 till
21.12.2014 to construct a house property. Having come to this conclusion that it is
case of construction it is now to be seen if the appellant fulfils the conditions laid
down under s. 54(1) of the Act. In the instant case; the appellant has occupied the
house property during 2013 vide letter dated 30.10.2013 offering occupation of
House property. Further, the appellant has claimed the deduction on amount
invested till the due date of filing of return under section 139 (1) of the Income-tax
Act. Further, the reliance placed by the assessing officer on the judgment of
 Honorable Delhi High Court in the case of Gulshan Malik Vs. CIT in ITA no. 55 of
2014 is not relevant to the facts of the case under appeal, since the issue involved in
the case of Gulshan Malik was pertaining to the period of holding of an asset for the
purpose of establishing whether the resultant gain is long term capital gain or is
short term capital gain. It was held that a right or interest in an immovable property
can accrue only by way of an agreement embodying consensus ad idem as against
the confirmation letter that does not confer any right to claim title. Similarly in the
case of CIT vs R.L.Sood [2008] 109 taxman 227/245 ITR 727 (Delhi), the honorable
High Court has declined request of the Revenue to call for reference on the proposed
question. It has further been clarified that realising the practical difficulties faced by
the appellant in such situations, the CBDT issued a circular No. 471, dt. 15th Oct,
1986. The relief extending instructions of the CBDT, in wake of realization of
practical difficulties faced by the appellants, by way of circular extending relief to
even marginally non compliant appellants in its literal sense of hyper
technicalities/cannot be used as a tool to interpreted instructions of the board or
decision of the law Courts, to deny the very relief to the otherwise compliant
appellants. In a recent reference to Honorable. Delhi High Court, in the case of CIT
vs Kuldeep Singh, the Honorable Court has observed and discussed various decision
of the other Honorable High Courts and Honorable Supreme Court; as follows;

A. CIT Andhra Pradesh vs. T. N. Aravinda Reddy (1979) 4 SCC 721;

B. Civil Appeal nos. 5899-5900/2014 titled Sh Sanjeev La I etc etc vs. CIT
Chandigarh & Anr decided on 01/07/2014, 2014 (8) SCALE 432

C. Reference was made to the decision of Supreme court in CIT vs J.H. Gotla [1985]
156 ITR 323 (SC).

D. Moreover in CIT vs Bharati C Kothari (2000) 244ITR 352

In the instant case, since the appellant entered- into an agreement for construction
of a bare shell of a house by periodic payment of installments and he had to carry
the internal fit-outs to make it live-able as per Annexure-V of the agreement with the
Builder Company, within Six months from the date of certificate of occupation from
the competent Authorities, this is to be treated as the case of construction. Further,
the construction has been completed within three years of the sale of original asset,
which is accepted by the Assessing Officer, the relief under section 54 is genuinely
claimed by. him and therefore, disallowance made under section 54 amounting to
Rs.4,00,97,217/- (A.No.496/14-15.), 4,10,45,578/-

(A.No.494/14-15) and Rs.4,01,93,262/- (A.No.495/14-15) may be deleted.

After going through the facts and circumstances of the case, submissions of the
appellant which include Board's circular and various case laws, I find merit in his
argument. From the above discussion, it is clear that the facts of the present case
indicates that it was a case of construction of flat and not purchase of flat as held by
the AO. Since, the case pertains to construction, benefit of section 54 are available
to the appellant. Therefore, after careful consideration to the relevant facts and law,
I am of the view that booking of bare shell of a flat is a construction of house
property and not purchase, therefore, the date of completion of construction is to be
looked into which is as per provision of section 54 of the LT. Act., therefore, the AO
is directed to allow benefit to the appellant as claimed u/s.54 of the I.T.Act.

Accordingly, the appeal on this ground is allowed.”

19. With respect to the challenge relating to disallowance of deduction under Section 54EC
of the Act, CIT (A) relying upon the judgment of High Court of Madras dated 16.12.2014 in
the case of CIT vs. Coromandal Industries Ltd. (2015) 370 ITR 586 (Madras), held that
the restriction on the investment in bonds of Rs. 50,00,000/- incorporated in Section
54EC(1) of the Act is effective from 01.04.2015 in relation to AY 2015-16 and the
subsequent years. Thus, following the aforenoted decision, the appeal of the assessee on
this ground was allowed. As regards the addition made on account of rental income received
from DT Cinemas amounting to Rs. 14,07,474/-, CIT (A) gave a finding of fact that no
maintenance charges were received by the Appellant, as confirmed by the tenant, verifiable
from the statement of account, TDS certificates and details reflected in Form 26AS. For
these reasons, the additions made by the AO, pertaining to maintenance charges, were also
directed to be deleted.

20. In the appeal filed by the Revenue, the Tribunal upheld the order of CIT (A) and
confirmed the deletions.

21. Mr. Ajit Sharma, learned senior standing counsel for the Appellant argues that the
impugned order is perverse and the Tribunal has erred in deleting the
additions/disallowances made by the AO without considering the detailed findings given in
the assessment order. He argued that the AO had rightly taken the effective date of
purchase as 10.02.2006 which is beyond the period of limitation prescribed under Section
54 of the Act. He further argued that since the property at Magnolias DLF was purchased
prior to the sale of the long term asset, the assessee cannot take benefit of the amounts
expended in the construction thereof as the sale proceeds of the long term assets have not
been utilized in the construction of the said property. He argued that the property at Jor
Bagh was sold on 21.12.2011 and as per the calculation submitted by the assessee, an
amount of Rs. 3,00,86,525/- had been paid to Magnolias DLF up to 31.03.2012 and Rs.
1,01,06,737/- towards bank, interest on loans and on cost of improvement of the property.
Such payments have not been made from the sale proceeds of the Jor Bagh property and
therefore the benefit of Section 54 of the Act should not be allowed to the assessee. He
further argued that ITAT is not justified in deleting the addition under Section 54EC of the
Act for excess investments in specified bonds without considering that the purpose of
inserting proviso to Sub Section 1 to Section 54EC of the Act was to clarify and remove any
ambiguity that existed and not allow any additional benefit by removing the restriction over
and above the limit of Rs. 50,00,000/- prescribed under Section 54EC Act. Lastly, he argued
that the deletion of addition of Rs. 14,07,474/- was erroneous and without appreciation of
the fact that as per Clause 8 (V) of the lease deed executed with DT Cinemas, the assessee
had received maintenance charges as income in disguise.

22. Mr. Salil Kapoor, learned counsel for the Respondents/Caveator urges that the present
appeals do not raise any question of law, much less substantial question of law which
requires consideration by this Court. He urges that the precise question urged by Revenue
in relation to Section 54 of the Act has already been decided by this Court in the cases of
CIT v. Bharti Mishra (2014) 265 CTR 374 (Delhi) and CIT v. Kuldeep Singh (2014) 270
CTR 561(Delhi). Regarding the benefit availed by the assessee under Section 54EC
pertaining to limit of investments in bonds, he relied upon the judgment of High Court of
Madras in CIT v. C. Jaichander (2015) 370 ITR 579 (Madras).

23. We have given due consideration to the submissions made by learned counsels for the
parties.

24. It is an accepted position and is not disputed by the Revenue that the assessee had sold
the property at Jor Bagh on 21.12.2011. On the said sale, the assessee has claimed
deduction of capital gains under Section 54 of the Act. The assessee was required to
purchase a residential house property either one year before, or within two years after the
date of transfer of original asset; or within a period of three years after the date he was
required to construct a residential house. CBDT in its circulars No. 672 dated 16.12.1993
has made it clear that the earlier circular No. 471 dated 15.10.1986 in which it was stated
that acquisition of flat through allotment by DDA has to be treated as a construction of flat,
would apply to cooperative societies and other institutions. The tax authorities have relied
upon the said circular and held that the builder would fall in the category of other
institutions and, therefore, booking of the flat with the builder has to be treated as
construction of flat by the assessee. In accordance with the said agreement, the assessee
was to make payment in installments and the builder was to construct an unfinished bare
shell flat for finishing by the buyers. The possession was granted on 30.03.2013. The lower
tax authorities after examining the terms of the agreement, the occupation certificate, and
the other letters-offer to finalize the details of interiors, have come to a conclusion that the
assessee had booked a semi furnished flat with the builder, namely, DLF Universal Ltd. in
the residential group housing complex named as Magnolias DLF Golf Links. Accordingly, the
assessee had a window of three years period from 21.12.2011 till 21.12.2014 to construct a
house property, calculated from the date of transfer of original asset. The appellant has
claimed deduction on amount invested till the due date of filing of return under Section 139
(1) of the Income Tax Act. In this factual background, we do not find any cogent ground to
hold that the Respondents do not fulfill the conditions laid down under Section 54 (1) of the
Act so as to deny the benefit of the said provision. The apprehension expressed by the
learned senior standing counsel for the Revenue is not borne from the facts on record. The
provision in question is a beneficial provision for assessees, who replace the original long
term capital asset by a new one. In relation to Section 54F, this Court in CIT v. Bharti
Mishra [2014] 265 CTR 374 (Delhi) has rejected the contention raised by the Revenue,
which is similar to one urged by Mr. Sharma, in the following words:

“13. For the satisfaction of the third condition, it is not stipulated or indicated in the
Section that the construction must begin after the date of sale of the original/old
asset. There is no condition or reason for ambiguity and confusion which requires
moderation or reading the words of the said sub-section in a different manner. The
apprehension of the Revenue that the entire money collected or received on transfer
of the original/capital asset would not be utilised in the construction of the new
capital asset, i.e., residential house, is ill-founded and misconceived. The
requirement of sub-section (4) is that if consideration was not appropriated towards
the purchase of the new asset one year before date of transfer of the original asset
or it was not utilised for purchase or construction of the new asset before the date of
filing of return under Section 139 of the Act, the balance amount shall be deposited
in an authorized bank account under a scheme notified by the Central Government.
Further, only the amount which was utilised in construction or purchase of the new
asset within the specified time frame stand exempt and not the entire consideration
received.

14. Section 54F is a beneficial provision and is applicable to an assessee when the
old capital asset is replaced by a new capital asset in form of a residential house.
Once an assessee falls within the ambit of a beneficial provision, then the said
provision should be liberally interpreted. The Supreme Court in CCE v. Favourite
Industries, [2012] 7 SCC 153 has succinctly observed:—

'21. Furthermore, this Court in Associated Cement Companies Ltd. v. State of Bihar
[(2004) 7 SCC 642], while explaining the nature of the exemption notification and
also the manner in which it should be interpreted has held: (SCCp. 648, para 12)

"12. Literally 'exemption' is freedom from liability, tax or duty. Fiscally it may
assume varying shapes, specially, in a growing economy. In fact, an exemption
provision is like an exception and on normal principle of construction or
interpretation of statutes it is construed strictly either because of legislative intention
or on economic justification of inequitable burden of progressive approach of fiscal
provisions intended to augment State revenue. But once exception or exemption
becomes applicable no rule or principle requires it to be construed strictly. Truly
speaking, liberal and strict construction of an exemption provision is to be invoked at
different stages of interpreting it. When the question is whether a subject falls in the
 notification or in the exemption clause then it being in the nature of exception is to
be construed strictly and against the subject but once ambiguity or doubt about
applicability is lifted and the subject falls in the notification then full play should be
given to it and it calls for a wider and liberal construction.

(See Union of India v. Wood Papers Ltd. [(1990) 4 SCC 256 : 1990 SCC (Tax) 422]
and Mangalore Chemicals and Fertilisers Ltd. v. Dy. CCT [1992 Supp (1) SCC 21] to
which reference has been made earlier.) "

22. In G.P. Ceramics (P.) Ltd. v. Dy. Commissioner, Trade Tax (2009) 2 SCC 90],
this Court has held: (SCC pp. 101-02, para 29)

29. It is now a well-established principle of law that whereas eligibility criteria laid
down in an exemption notification are required to be construed strictly, once it is
found that the applicant satisfies the same, the exemption notification should be
construed liberally.

[See CTT v. DSM Group of Industries[(2005) 1 SCC 657] (SCC para 26); TISCO Ltd.
v. State of Jharkhand [(2005) 4 SCC 272] (SCC paras 42-45); State Level
Committee v. Morgardshammar India Ltd. [(1996) 1 SCC 108] ; Novopan India Ltd.
v. CCE & Customs [1994 Supp (3) SCC 606] ; A.P. Steel Re-Rolling Mill Ltd. v. State
of Kerala [(2007) 2 SCC 725] and Reiz Electrocontrols (P.) Ltd. v. CCE. [(2006) 6
SCC 213]'

15. In view of the aforesaid position, we do not find any merit in the present appeal
and the same is dismissed.”

25. The aforenoted findings of the tax authorities are factual and cannot be categorized as
perverse. It cannot be said in the facts of the present case that the deduction claimed for
the construction were not relatable to the transaction of sale of the Jor Bagh property which
resulted in income by way of capital gains. There is no ground urged by Revenue before CIT
(A), or before the ITAT, that the expenditure was not connected with the sale transactions.
Moreover, we cannot go into the factual question as to whether the deduction claim made
by the assessee with regard to the payments were not genuine, or were not made. The AO
had treated the date of acquisition of the residential property as 10.02.2006 and denied the
exemption under Section 54 of the Act, which was not the correct approach. We, therefore,
do not find any question of law that arises for our consideration on this ground. With respect
to the deduction under Section 54EC of the Act being restricted to Rs. 50,00,000/- as
against Rs. 1,00,00,000/-, we may note that the said question has already been answered
in the judgment relied upon by the Tribunal to uphold the deletion by CIT (A). The High
Court of Madras in CIT vs. Coromandal Industries Ltd. (supra) has held as under:

“4. The issue involved in this appeal is no longer res integra in view of the decision of
this Court in CIT v. C. Jaichander [Order dated 15.9.2014 made in T.C.(A) Nos. 419
and 533 of 2014], to which one of us - R.SudhakarJ. is a party). In the said decision,
this Court held as under:

“5. The key issue that arises for consideration is whether the first proviso to Section
54EC(1) of the Act would restrict the benefit of investment of capital gains in bonds
to that financial year during which the property was sold or it applies to any financial
year during the six months period.

6. For better understanding of the issue, it would be apposite to refer to Section

54EC(1) of the Act, which reads as under:

'Section 54EC. Capital gain not to be charged on investment in certain bonds.—

(1) Where the capital gain arises from the transfer of a long-term capital asset (the
capital asset so transferred being hereafter in this section referred to as the original
asset) and the assessee has, at any time within a period of six months after the date
of such transfer, invested the whole or any part of capital gains in the long-term
specified 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 of the long-term specified asset is not less than the capital gain arising
from the transfer of the original asset, the whole of such capital gain shall not be
charged under section 45 ;

(b) if the cost of the long-term specified asset is less than the capital gain arising
from the transfer of 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 acquisition of the long-
term specified asset bears to the whole of the capital gain, shall not be charged
under section 45.

Provided that the investment made on or after the 1st day of April, 2007 in the long-
term specified asset by an assessee during any financial year does not exceed fifty
lakh rupees.'

7. On a plain reading of the above said provision, we are of the view that Section
54EC(1) of the Act restricts the time limit for the period of investment after the
property has been sold to six months. There is no cap on the investment to be made
in bonds. The first proviso to Section 54EC(1) of the Act specifies the quantum of
investment and it states that the investment so made on or after 1.4.2007 in the
long-term specified asset by an assessee during any financial year does not exceed
fifty lakh rupees. In other words, as per the mandate of Section 54EC(1) of the Act,
the time limit for investment is six months and the benefit that flows from the first
proviso is that if the assessee makes the investment of Rs.50,00,000/- in any
financial year, it would have the benefit of Section 54EC(1) of the Act.

8. The legislature noticing the ambiguity in the above said provision, by Finance
(No.2) Act, 2014, with effect from 1.4.2015, inserted after the existing proviso to
sub-section (1) of Section 54EC of the Act, a second proviso, which reads as under:

"Provided further that the investment made by an assessee in the long-term

specified asset, from capital gains arising from transfer of one or more original
assets, during the financial year in which the original asset or assets are transferred
and in the subsequent financial year does not exceed fifty lakh rupees."

9. At this juncture, for better clarity, it would be appropriate to refer to the Notes on
Clauses - Finance Bill 2014 and the Memorandum explaining the provisions in the
Finance (No.2) Bill, 2014, which read as under:

"Notes on Clauses - Finance Bill 2014:

Clause 23 of the Bill seeks to amend section 54EC of the Income-tax Act relating to
capital gain not to be charged on investment in certain bonds. The existing
provisions contained in sub-section (1) of section 54EC provide that where capital
gain arises from the transfer of a long-term capital asset and the assessee has within
a period of six months invested the whole or part of capital gains in the long-term
specified asset, the proportionate capital gains so invested in the long-term specified
asset out of total capital gain shall not be charged to tax. The proviso to the said
sub-section provides that the investment made in the long-term specified asset
during any financial year shall not exceed fifty lakh rupees.
It is proposed to insert a proviso below first proviso in said sub-section (1) so as to
provide that the investment made by an assessee in the long-term specified asset,
from capital gains arising from transfer of one or more original assets, during the
financial year in which the original asset or assets are transferred and in the
subsequent financial year does not exceed fifty lakh rupees.

This amendment will take effect from 1st April, 2015 and will, accordingly, apply in
relation to assessment year 2015-16 and subsequent years.

Memorandum: Explaining the provisions in the Finance (No.2) Bill, 2014:

Capital gains exemption on investment in Specified Bonds.

The existing provisions contained in sub-section (1) of section 54EC of the Act
provide that where capital gain arises from the transfer of a long-term capital asset
and the assessee has, at any time within a period of six months, invested the whole
or any part of capital gains in the long-term specified asset, out of the whole of the
capital gain, shall not be charged to tax. The proviso to the said sub-section provides
that the investment made in the long-term specified asset during any financial year
shall not exceed fifty lakh rupees. However, the wordings of the proviso have created
an ambiguity. As a result the capital gains arising during the year after the month of
September were invested in the specified asset in such a manner so as to split the
investment in two years i.e., one within the year and second in the next year but
before the expiry of six months. This resulted in the claim for relief of one crore
rupees as against the intended limit for relief of fifty lakhs rupees.

Accordingly, it is proposed to insert a proviso in sub-section (1) so as to provide that

the investment made by an assessee in the long-term specified asset, out of capital
gains arising from transfer of one or more original asset, during the financial year in
which the original asset or assets are transferred and in the subsequent financial
year does not exceed fifty lakh rupees.

This amendment will take effect from 1 st April, 2015 and will, accordingly, apply in
relation to assessment year 2015-16 and subsequent assessment years."

10. The legislature has chosen to remove the ambiguity in the proviso to Section
54EC(1) of the Act by inserting a second proviso with effect from 1.4.2015.The
memorandum explaining the provisions in the Finance (No. 2) Bill, 2014 also states
that the same will be applicable from 1.4.2015 in relation to assessment year 2015-
16 and the subsequent years. The intention of the legislature probably appears to be
that this amendment should be for the assessment year 2015-2016 to avoid
unwanted litigations of the previous years. Even otherwise, we do not wish to read
anything more into the first proviso to Section 54EC(1) of the Act, as it stood in
relation to the assessees.

11. In any event, from a reading of Section 54EC(1) and the first proviso, it is clear
that the time limit for investment is six months from the date of transfer and even if
such investment falls under two financial years, the benefit claimed by the assessee
cannot be denied. It would have made a difference, if the restriction on the
investment in bonds to Rs.50,00,000/- is incorporated in Section 54EC(1) of the Act
itself. However, the ambiguity has been removed by the legislature with effect from
1.4.2015 in relation to the assessment year 2015-16 and the subsequent years.

For the foregoing reasons, we find no infirmity in the orders passed by the Tribunal
warranting interference by this Court. The substantial questions of law are answered
against the Revenue and these appeals are dismissed.' (Emphasis Supplied)”
 5. The decision of this Court in Areva T and D India Ltd (supra) relied upon by the
learned Senior Standing Counsel for the appellant is not applicable to the facts of the
present case, as in the said decision the writ petitions filed "for issuance of writ of
declaration declaring that the conditions occurring in Notification No. 380 of 2006 F.
No. 142/09/ 2006-TPL, dated December 22, 2006, along with the words 'subject to
the following conditions, namely,' issued by the Central Board of Direct Taxes are
ultra vires Section 54EC of the Income-tax Act, 1961, and arbitrary and violative of
Articles 14 and 265 of the Constitution of India and consequently unenforceable",
were dismissed as infructuous taking note of the subsequent amendment to Section
54EC of the Act, incorporating the limit on amount of investment in bonds in the
section itself.

6. For the reasons aforesaid, we do not find any question of law, much less
substantial question of law that arises for our consideration in this appeal.
Accordingly, this appeal is dismissed. No costs.”

26. In view of the aforesaid decision, we are of the opinion that the question urged by the
Revenue does not require our consideration.

27. As regards the third question of law- relating to deletion of addition of Rs. 14,07,474/-,
it is to be noted that the ITAT has held that the presumption drawn by the AO for making
the addition was patently false, based on conjectures and surmises, without appreciating
the records and making an inquiry to discredit the evidences and confirmation placed on
record by the assessee. DLF Universal Ltd. has confirmed that the payment of rent under
the lease agreement to the assessee, and has also stated that no other amount is due on
any account whatsoever. Maintenance of the property was being done by the tenant itself.
In absence of any evidence of receipt of any amount on account of maintenance, that would
contradict the books of account, the deletion made by CIT (A) has been upheld. This
consistent factual finding arrived at by the CIT (A) and ITAT does not give rise to any
question of law.

28. In view of the above, the appeals do not merit any consideration by this Court and are
accordingly dismissed.