Exemption U/s 54F eligible if delay in investment was beyond control of Assessee

Dashrath Ambalal Patel Vs ITO (ITAT Ahmedabad)

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.

FACTS –

Assessee, an individual, is engaged in the business of labour work for electric fitting. Assessee was the 1/3^rd 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 13^th August, 2006. Assessee being 1/3^rd 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 10^th 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.

HELD –

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 1/3^rdowner 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 1/3^rd 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: