2014 (1) TMI 1362 - AT - Income Tax

Exemption u/s 54 - Held that - Firstly the assessee invested the amount of sale consideration in flat under cinstruction - But due to some conflicts, the amount was refunded back to the assessee - The assessee immediately thereafter deposited the same with another builder for purchase of flat - The intention of the assessee was to immediately invest his capital gain from transfer of long term capital asset towards acquiring of residential flat and there was no intentional delay on the part of the assessee for not appropriating the net consideration - In this case the assessee will be allowed deduction only for the amount invested alongwith the amount incurred on stamp duty and incidental expenses within a period of three years as stipulated u/s 54F - The issue has been restored for fresh adjudication - Partly allowed in favour of assessee.

Issues Involved:
1. Rejection of exemption claim due to full utilization of investible funds in a residential flat.
2. Non-granting of full relief of investment commitment made before filing the return.
3. Non-appreciation of the commitment of full price as an important aspect of purchasing a flat under construction.
4. Disallowance of exemption based on a distinguishable case decision.
5. Non-granting of exemption for costs including stamp duty, VAT, service tax, and registration charges.

Detailed Analysis:

1. Rejection of Exemption Claim:
The assessee claimed a deduction under section 54F of the Income Tax Act, 1961, for investing Rs. 1.60 crores in a residential flat. The Assessing Officer (A.O.) noted that the assessee had only invested Rs. 1 crore by the date of filing the return and had not deposited the amount in the specified accounts as required by section 54F(4). Consequently, the A.O. disallowed Rs. 61,36,000 of the claimed deduction.

2. Non-granting of Full Relief of Investment Commitment:
The assessee argued that the entire amount received from the sale of shares was initially invested in an under-construction flat. However, due to the cancellation of the agreement with the first builder, the assessee had to reinvest the amount with another builder. The assessee contended that the investment was made within the stipulated period and should qualify for the deduction.

3. Non-appreciation of Full Price Commitment:
The assessee emphasized that the commitment to the full price agreed with the builder is a crucial aspect of purchasing a flat under construction. The assessee maintained that the investment was made with bona fide intentions and within the permissible period under section 54F.

4. Disallowance Based on a Distinguishable Case:
The Commissioner (Appeals) upheld the A.O.'s decision by distinguishing the judgments cited by the assessee and relying on the decision in Taranbir Singh Sawhney v/s DCIT. The assessee argued that the facts of the present case were different and that the cited case should not be applicable.

5. Non-granting of Exemption for Additional Costs:
The assessee also claimed exemption for additional costs such as stamp duty, VAT, service tax, and registration charges incurred in connection with the purchase of the flat. These costs amounted to Rs. 26,79,674.

Judgment:

The Tribunal observed that the assessee had invested the entire sale consideration in an under-construction flat immediately after receiving the money. Due to bona fide reasons, the agreement with the first builder was canceled, and the amount was reinvested with another builder within the stipulated period. The Tribunal noted that the intention of the legislature is to provide relief to taxpayers who invest in acquiring a new residential house.

The Tribunal held that the assessee had complied with the provisions of section 54F by investing in the construction of a residential house within three years from the date of transfer. The Tribunal also acknowledged that the additional costs incurred up to the period of three years should be allowed as a deduction.

The Tribunal directed the A.O. to allow the deduction for the amount invested up to Rs. 1.20 crores and the additional costs incurred within three years from the date of transfer. The balance amount beyond this period was to be disallowed. Consequently, the grounds raised by the assessee were treated as partly allowed.

Conclusion:

The assessee's appeal was partly allowed, with the Tribunal directing the A.O. to work out the relief accordingly. The judgment emphasized the bona fide intentions of the assessee and the compliance with the stipulated period for claiming deductions under section 54F. The additional costs incurred within the permissible period were also allowed as a deduction.

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