Case Law Details
Anil Kirthisimhan Wijeyanayake Vs ACIT (ITAT Chennai)
In a pivotal case between Anil Kirthisimhan Wijeyanayake and ACIT, ITAT Chennai ruled that delays in handing over the possession of a flat by the developer do not undermine an assessee’s claim for capital gain deductions under Section 54 and 54F of the I.T. Act, 1961.
The issue at the heart of the matter was the timing of the flat possession against the three-year rule for exemption claims under Section 54. The assessee, along with Mr. Sunil Wijeyanayake, had entered into a Joint Development Agreement with M/s Foundation One Infrastructure (P) Ltd., receiving seven flats as consideration for transferring 50% undivided share in their land. The AO initially disputed the assessee’s valuation and denied the exemption as the flats were handed over beyond the stipulated three years. The Ld. CIT(A) upheld this decision.
Upon appeal, ITAT Chennai ruled in favor of the assessee, stating that the delay in possession was beyond the assessee’s control and would not invalidate the claim. It held that the assessee had made a deemed investment in the flats upon entering the agreement, thereby meeting the criteria for exemption under Section 54F.
Conclusion: This landmark judgment by ITAT Chennai sheds light on the complexities surrounding real estate transactions and capital gains tax calculations. By ruling in favor of the assessee, ITAT Chennai underscores the essence of such agreements beyond strict timelines and provides assessees with a measure of relief from the unpredictability of real estate transactions. The ruling sets a precedent that factors beyond the assessee’s control, such as delays from the developer’s end, should not prejudice the assessee’s legitimate claims under the IT Act.
FULL TEXT OF THE ORDER OF ITAT CHENNAI
1. Aforesaid appeal was disposed-off vide common order dated 0612-2022. However the order was recalled for limited purpose of adjudication of ground no.1 vide MA No.12/Chny/2023 dated 17-02-2023 since that ground remained to be adjudicated. Accordingly, the appeal has been placed before this bench for limited purpose of adjudication of ground no.1 which read as under: –
1. The learned CIT(A) has erred in directing the AO not to consider the cost of flats to the extent of Rs.58,99,986/ for computing exemption u/s 54 and 54F of the I.T.Act, 1961, in the facts and the circumstances of the case and in law. Having heard rival submissions, the same is adjudicated as under.
2. From the Tribunal common order dated 06-12-2022 for AY 200910, it emerges that the assessee along with Mr. Sunil Wijeyanayake entered into Joint Development Agreement (JDA) with M/s Foundation One Infrastructure (P) Ltd. (FIPL) on 11.06.2008 for construction of residential apartments on property owned by them. The owners were to get 50% of super built-up area in exchange. The assessee received 7 flats for transfer of 50% undivided share in the land. The assessee computed Long Term Capital Gains u/s 50D and claimed exemption u/s 54 on 2 flats out of 7 flats. The Ld. AO disputed the valuation of the assessee and also opined that exemption u/s 54 would not be available since the flats were handed over to the assessee only on 30.03.2012 which is more than 3 years. The assessee had adopted sale consideration as per Sec.50D which was rejected by Ld. AO. Finally, the sale consideration was adopted at Rs.526.31 Lacs and Long-Term Capital Gains were computed at Rs.470.67 Lacs which were added to the returned income. The value of one flat was taken to be Rs.75.18 Lacs and deduction u/s 54 was denied since the flats were handed over to the assessee beyond 3 years.
3. The Ld. CIT(A) held that the provisions of Sec.50D was inserted by Finance Act 2012 w.e.f. 01.04.2013 and therefore, Ld. AO was right in rejecting the same and adopting cost of construction as the full value of consideration. Regarding assessee’s eligibility to claim deduction u/s 54, the denial of the same was confirmed since the flats were acquired by the assessee beyond 3 years.
4. Upon further appeal, Tribunal held that the assessee did not receive any consideration in cash rather the consideration was in the shape of flats only. Therefore, on the date of entering into JDA with the developer, it could be concluded that the assessee made deemed investment to acquire the flats. The mere delay on the part of the developer to hand over the possession of the flat would not vitiate the claim of the assessee since it would be beyond the control of the assessee to ensure timely acquisition of the flat. Finally, it was held that the assessee would be eligible for deduction u/s 54F against all the 7 flats so acquired under the agreement. Thus, deduction u/s 54F has fully been allowed to the assessee in AY 2009-10.
5. In AY 2012-13, the assessee has sold three flats i.e., A201, A401 and B302 and admitted Long Term Capital Gains which has been accepted by Ld. CIT(A). The assessee has claimed exemption in respect of unclaimed balance cost of Rs.58.99 Lacs for two flats viz. 901 and 902. The same has been denied by Ld. CIT(A). Aggrieved, the assessee has raised ground no.1.
6. We find that we have already allowed deduction u/s 54F in full in AY 2009-10 in order dated 06-12-2022 and the said adjudication would have material bearing on assessee’s computations in this year. Therefore, we direct Ld. AO to re-compute the gains for this year considering our decision for AY 2009-10. The assessee is directed to provide the necessary computations.
7. This ground stand allowed for statistical purposes. The appeal remains partly allowed for statistical purposes.
Order pronounced on 12th June, 2023.
