Conclusion: Assessee is eligible for exemption u/s 54F for the amount invested beyond the prescribed period but before getting the property registered since there was sufficient reason, beyond the control of the assessee, which prevented the assessee from making investment within prescribed time.
Assessee, an individual, is engaged in the business of labour work for electric fitting. Assessee was the 1/3rd owner in the property bearing block no. 755-756 measuring about 23169 sq.mt. along with two other persons. The said property was sold for INR 66,00,000 vide sale deed dated 13th August, 2006. Assessee being 1/3rd owner of the property had INR 22,00,000 as sale consideration. Assessee had capital gain of around INR 9,57,447, however, claimed exemption u/s 54F on account of investment of INR 11,11,000 in another property.
During the assessment proceeding, AO observed that the new property was registered on 10th October, 2011 which was beyond the time period prescribed in section 54F and hence AO objected the exemption and accordingly made addition of LTCG amount to INR 9,57,447.
Assessee submitted that payment was made before the execution of sale deed and delay in registration of sale deed was due to some civil litigation and various statutory authorities order which was beyond its control and hence exemption u/s 54F cannot be declined.
The CIT(A) allowed the exemption u/s 54F amounting to INR 4,83,511 contenting that the exemption u/s 54F is available in proportion out of LTCG which the investment in new property with total sale consideration [i.e. (9574477X11,11,000)/22,00,000].
Assessee claimed investment of INR 11,11,000 before AO, however, claimed investment of INR 19,34,000 for the first time before CIT(A). INR 8,34,000 was paid beyond the prescribed period of 3 years but before getting property registered.
Re-investment was delayed on account of the property dispute which was beyond the control of the assessee and therefore the assessee is very much eligible for deduction u/s 54F for the amount which has been invested by him beyond the prescribed period but before getting the registration of the property.
Since investment of INR 8,34,000 was claimed for the first time before CIT(A), AO was directed to verify the amount invested by the assessee and allow the exemption u/s 54F for the amount invested in the property beyond the prescribed period but before the registration of the property.
FULL TEXT OF THE ITAT JUDGMENT
The captioned appeal has been filed at the instance of the Assessee against the order of the Commissioner of Income Tax (Appeals)–XIV, Ahmedabad [CIT(A) in short] vide appeal no. CIT(A)-XIV/wd.7(2)/327/2012-13 dated 03.12.2013 arising in the matter of assessment order passed under s.143(3) r.w.s. 147 of the Income Tax Act, 1961(here-in-after referred to as “the Act”) dated 15.01.2013 relevant to Assessment Year (AY) 2007-08.
2. The grounds of appeal raised by the assessee are as under:-
1.1 The order, passed u/s.250 on 3.12.2013 for A.Y.2007-2008 by CIT(A)-XIV, Abad partly confirming the exemption u/s,54F by Rs.4,73,936/- is wholly illegal, unlawful and against the principles of natural justice.
2.1 The 1d. CIT(a) has grievously erred in law and or on facts in upholding the deduction U/S.54F to the extent of Rs.4,73,936/-.
2.2 That in the facts and circumstances of the case as well as in law, the 1d. CIT(A) ought not to have upheld the deduction u/s.54F to the extent of Rs.4,73,936/-.
3.1 The 1d. CIT(A) has failed to appreciate that the entire investment made in the purchase of bunglow at Sahajand Palace was eligible for exemption u/s.54F and same should not have been restircd to Rs. 11,11,000.
4.1 The 1d. CIT(A) has erred in upholding the validity of reopening of the asstt. u/s.147.
It is therefore prayed that fully exemption should be allowed u/s.54F.”
3. The only issue raised by the assessee is that the Ld. CIT(A) erred in granting exemption u/s 54 of the Act for Rs.4,73,936/- out of the total exemption claimed for Rs.11,11,000/-.
4. Briefly stated facts are that the assessee is an individual and engaged in the business of Labour work for electric fitting. The assessee is also deriving income from other sources under the head interest income. The assessee was the co-owner in the property bearing block no. 755-756 admeasuring about 23169 sq. Meters at Ghuma along with Shri Suresh A. Patel and Shri Chandrakant Patel. The assessee along with two other individuals was a 1/3rdowner in the said property. The assessee acquired the property along with his co-owners before 1981. The assessee along with co-owner has sold out the property for an amount of Rs. 66,00,000/- vide sale deed dated 13-8-2006. Accordingly, the assessee was entitled to his share in the property amounting to Rs. 22,00,000/- being 1/3rd Share of sale consideration. The assessee worked out Long Term Capital Gain in respect of such property for Rs. 9,57,447/- which was claimed as exempt u/s 54F of the Act on account of investment in another property for an amount of Rs. 11,11,000/- The necessary working of the capital gain stands as under:
|(-) Index cost of acquisition||Rs.12,42,553/-|
|Long Term Capital Gain||Rs. 9,57,447/-|
|(-) Exemption u/s 54F||Rs.11,11,000/-|
|Long Term Capital Gain||Nil|
However, the AO during the assessment proceedings observed that the property purchased was registered in the name of the assessee vide dated 10.10.2011 which is beyond the period prescribed under the provision of Section 54F of the Act. Accordingly, the AO denied the exemption claimed by the assessee u/s 54F of the Act. Thus, the AO made the addition as Long Term Capital Gain of Rs. 9,57,447/- to the total income of the assessee.
5. Aggrieved, assessee preferred an appeal to Ld CIT(A). The assessee before the Ld. CIT(A) submitted that he had invested in the new residential house for an amount of Rs.19,34,000/- as detailed under:
|Sr. No.||Name of Party||Cheque No.||Date||Amount|
|1.||M/s. Hare Krishna Developers||148792||22.02.2006||11,000/-|
5.1 As per the assessee, the payment above was made before the date of execution of the purchase deed, i.e. 10.10.2011.
5.2 The assessee further claimed that the delay in getting the property registered was due to some litigation for getting the same settled. Thus, the delay occurred due to the situation which was beyond the control of the assessee. Therefore, the assessee claimed that he should not be penalized by not allowing exemption u/s 54F of the Act on account of the delay occurred due to the unavoidable situation.
However, the Ld. CIT(A) deleted the addition in part made by the Ld. AO by observing as under:
“5. I have perused the facts of the case as enumerated by A.O. and as submitted by appellant. I have perused the case laws relied on by A.O. as well as appellant. After careful consideration of facts, submission and contention of both A.O. as well as of appellant, ground wise adjudication is as follows:
The appellant’s one and only ground is against the addition of long term capital gain of Rs.957447 denying the benefit to appellant u/s 54F of the Act.
It is observed from impugned assessment order that appellant failed to reflect the transaction of sale of land co owned with two other person and despite the fact that appellant’s original return of income is presently before the Hon’ble ITAT but this issue was not there. The A.O. after receipt of credible information, recorded satisfaction and after taking statutory approval, issued notice u/s 148 of the Act. The appellant also filed return in response to this notice u/s 148 of the Act though beyond the time limit as granted by A.O. in the notice. The appellant reflected the transaction of sale of land resulting into long term capital gain but claimed deduction u/s 54F of the Act for an amount of Rs.11,11,000/- invested in a house property. Though A.O. treated this return of income as non-est but taken computation of income from the same return of income. The appellant filed all the details before A.O. as asked (admitted by A.O. in impugned order and accepted the transaction of sale of land at Rs.66 lacs with 1/3rd share of appellant at Rs.22 lacs. The A.O. also accepted the appellant’s share for cost of acquisition (indexed) at Rs.1242553 to workout long term capital gain at Rs.957447/-. The A.O. also not doubted about transaction of investment of Rs.11,11,000/- in a house property but only on the fact that for the same property the registration deed was made on 10.10.11, the time limit as stipulated under section 54F of the Act was not adhered hence the deduction was rejected.
The appellant emphatically contended that it made investment of Rs.11,11,000/- till 15/12/2006 which was not disputed by A.O. also and evidenced through bank account but on account of civil litigation and various statutory authorities order, the completion of construction and resultant Building use permission was granted later hence registration was made on 10.10.11 after payment of remaining amount. It is therefore, the appellant complied the condition of investment for construction of flat within time stipulated and it is because of special circumstances beyond the control of appellant that despite his clear intention followed by action of payment of fund was not materialized in prescribed time limit.
I am inclined by the contention of the appellant that in the undisputed and special facts & circumstances, the benefit of section 54F of the Act should not be denied to appellant. The ratio of Hon’ble ITAT, Chennai order as relied on by appellant is squarely applicable in the case of appellant. The appellant produced all necessary details to substantiate the circumstances beyond his control. Hon’ble Bombay high court in the case of CIT Vs. Smt. Beena K. Jain (1974) 75 taxman 145 and Hon’ble Madhya Pradesh high court in the case of CIT Vs. Ajitsingh Khajanchi (2007) 163 Taxman 426 held that it is the date of payment and not the registration or registered deed which matters for the claim of deduction u/s 54F of the Act. Hon’ble Gujarat high court in the case of Harsutrai J. Raval Vs. CIT (2002) 255 ITR 315 held that if the conditions u/s 54F of the Act are substantially satisfied then assessee is entitled for deduction.
Hon’ble Gujarat high court full such in the case of CIT Vs. Mormasji Manchariji Vaid (2001) 250 ITR 542 categorically held that it is the date of execution of immovable property rather than date of registration which is all important
The appellant’s case is squarely covered with Hon’ble Delhi high court decision in the case of Balraj Vs. CIT (2002) 254 ITR 22. It was held by Hon’ble high court that-
“For the purpose of attracting the provisions of sec. 54 of the IT. Act, it is not necessary that the assessee should become the owner of the property. Sec. 54 of the Act speaks of purchase.”
Hon’ble high court relied on supreme court judgment in the case of CIT Vs. T. N. Aravinda Reddy (1979) 120 ITR 46 where it has been held that “The word “purchase” occurring in section 54(1) of the Act had to be given its common meaning viz. buy for a price or equivalent of price by payment in kind or adjustment towards a debt or for other monetary consideration.” It is therefore, following the finding as discussed above and ratio of various case taws, the appellant is entitled for deduction u/s 54F of the Act for the investment of Rs.11,11,000/- for a residential property. But, as per the provisions of section 54F, the deduction available u/s 54F of the Act will be in the proportion out of long term capital gain, which the investment in new evidential property bears with total sale consideration. The appellant’s total consideration was undisputedly of Rs.22,00,000/- and long term capital gain is of Rs.9,57,447/-. It is therefore for the investment of Rs.11,11,000/- the available deduction out of long term capital gain will be Rs.4,83,511/-
[9,57,447 X 11,11,000]
It is important that except investment of Rs.11,11,000/- for a residential property, the appellant has not deposited the balance sale consideration in any specified account as provided in section 54F of the Act. Therefore, the disallowances & addition made by A.O. of Rs.9,57,447/- is restricted to Rs.4,73,936/-(9,57,447 -4,83,511). The A.O. is directed to delete the balance addition of Rs.4,83,511/-. This ground is partly allowed.”
Being aggrieved by the order of the Ld. CIT(A) assessee is in appeal before us.
6. The Ld. AR before us filed a paper book running from pages 1-186 and reiterated the submissions made before the Ld. CIT(A).
7. On the other hand, the Ld. DR vehemently supported the order of the authorities below.
8. We have heard the rival contentions and perused the materials available on record. From the preceding discussion, we note that the assessee before the AO claimed to have invested in the Residential property for Rs.11,11,000/- only immediately after the sale of the property. Accordingly, the assessee claimed the exemption u/s 54F of the Act for Rs.11.11 Lacs. However, the AO rejected the plea of the assessee on the ground that the property was not registered in the name of the assessee within the time as prescribed under the provision of Section 54F of the Act.
However, the assessee before the Ld. CIT(A) claimed to have invested for Rs.19,34,000/- as discussed above. Accordingly, the assessee pleaded before the Ld. CIT(A) for the exemption of the entire amount invested in the new residential unit as discussed above. As per the assessee, there was a delay in making the payment and getting the property registered in his name due to the situation which was beyond his control. The Ld. CIT(A) admitted the claim of the assessee and relaxed the provision for depositing money in the capital gain account scheme before filing the income tax return as prescribed under the provision of Section 54F of the Act. Accordingly, the Ld. CIT(A) allowed the relief to the assessee proportionately for the amount invested in the property for Rs. 11.11 lacs.
The only grievance of the assessee before us is that he has invested money of Rs. 19.34 lacs which should have been considered for exemption u/s 54F of the Act. It is a fact on record that the assessee before the AO claimed to have invested Rs. 11.11 lacs. However, the assessee before the Ld. CIT(A) claimed the first time to have made the payment of Rs.19.34 lacs out of which a sum of Rs. 8,34,000/- was paid in April & May 2011, i.e. the date beyond the period of three years but before getting the registration of the property.
From the above, it is clear that the assessee has never filed anything about the payment of Rs. 8.34 lacs before the AO. Therefore, the same needs to be verified by the AO.
9. The next issue arises whether the assessee is eligible for deduction u/s 54F of the Act for the payment made beyond three years.
10. In this regard, we note that there was a delay on account of some dispute in the property which prevented the assessee from investing the money within the time as specified under section 54F of the Act. Thus, it is clear that the assessee could not comply with the provision of Section 54F of the Act which was beyond his control. Therefore we are of the view that the assessee is very much eligible for deduction u/s 54F of the Act for the amount which has been invested by him beyond the prescribed period but before getting the registration of the property provided there was sufficient reason which prevented the assessee for making in the investment within the prescribed time.
Considering the facts & situation as discussed above, we are of the view that the delay occurred due to the situation beyond the control of the assessee. Thus, he is eligible for deduction u/s 54F of the Act. In this regard, we find support and guidance from the order of ITAT, Chennai in the case of Smt. V. A. Tharabai vs. DCIT reported in (2012) 149 TTJ (Chennai) (UO) 41, wherein it was held as under:
“A dominant factor to be seen in the instant case is that the entire consideration received by the assessee on sale of her old property has been utilized for the purchase of the new property. The purchase value of the property is more than the long-term capital gains taxable in the hands of the assessee. This fact is very crucial. The conduct of the assessee unequivocally demonstrates that the assessee was in fact proceeding to construct a residential house, based on which the assessee had claimed exemption under section 54F. Therefore, what is the reality? The reality is that the assessee has spent the entire consideration received on the sale of property towards the construction of the residential house. It is true that the assessee could not construct the house. But she has purchased the land utilizing the entire consideration received on the sale of the old property. It means that the assessee has invested the entire consideration received on sale of the old asset in acquiring/constructing a residential house property. In the special facts and circumstances of the instant case, it is necessary to hold that the amount utilized by the assessee to purchase the land was in fact utilized for acquiring/constructing a residential house. De facto speaking, that part of the construction of the house property which was not completed within the period of three years, is altogether a different matter. Without purchasing land, house cannot be constructed. The first step should be the purchase of land. That was done. No step could be put forward thereafter, for reasons already stated. Therefore, the entire amount spent by the assessee in purchasing the land should be construed as amount invested in purchase/construction of residential house.”
However, we note that the amount invested by the assessee is not coming out from the submission of the assessee as made before the AO. Therefore, we direct the AO to verify the amount invested by the assessee and allow the exemption u/s 54F of the Act for the amount invested in the property beyond the prescribed period but before the registration of the property. Hence, the ground of appeal of the assessee is allowed for statistical purposes.
11. In the result, the appeal of the assessee is allowed for statistical purposes.
This Order pronounced in Open Court on 01/01/2019