2015 (8) TMI 1204 - AT - Income Tax

Claim of exemption under section 54 denied - no purchase deed was executed by the builder and that there was only an allotment letter issued - Held that - As per the Revenue the advance could be returned at any time and, therefore, the assessee may lose the exemption under section 54 of the Act. In our considered opinion, the aforesaid does not militate against assessee s claim for exemption in the instant assessment year, as there is no evidence that the advance has been returned. In case, if it is found that the advance has been returned, it would certainly call for forfeiture of the assessee s claim under section 54 of the Act. In such a situation, the proviso below section 54(2) of the Act would apply whereby it is prescribed that such amount shall be charged under section 45 as income of the previous year, in which the period of three years from the date of the transfer of the original asset expires. The aforesaid provisions also does not justify the action of the Assessing Officer in denying the claim of exemption under section 54 in the instant assessment year. The assessee can be said to have complied with the requirement of section 54 of the Act; and, the exemption has been incorrectly denied by the lower authorities. As a matter of passing, we may also mention here the reliance placed by Ld. Representative of the assessee on the decision of our Coordinate Bench in the case of Shri Khemchand Fagwani vs. ITO, 2015 (8) TMI 1019 - ITAT MUMBAI wherein also claim of exemption under section 54 of the Act was allowed under similar circumstances. In the light of the precedent, we find no reason to deny the claim under section 54 of the Act. - Decided in favour of assessee.

Summary

Issues Involved:
1. Denial of exemption under section 54 of the Income Tax Act, 1961.
2. Interpretation of the term 'purchase' under section 54.
3. Compliance with the time limits prescribed under section 54.
4. Levy of interest under sections 234A, 234B, and 234C.

Detailed Analysis:

1. Denial of Exemption under Section 54:
The primary grievance of the assessee was against the denial of exemption under section 54 by the income-tax authorities. The assessee had declared the sale of a residential property and claimed exemption under section 54 based on the acquisition of a new residential house. The investment in the new house was substantiated by an advance payment to the builder and an allotment letter. However, the Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] denied the exemption on the grounds that the construction of the new property was not completed within the stipulated period, and the assessee did not gain possession of the new premises.

2. Interpretation of the Term 'Purchase':
The core issue revolved around the interpretation of the term 'purchase' under section 54. The AO and CIT(A) held that giving an advance could not be equated to 'purchase' as no agreement was executed, and the advance could be returned. The Tribunal, however, referred to various judicial precedents, including the Delhi High Court's decision in the case of Kuldeep Singh, which explained that 'purchase' should be interpreted pragmatically. The Tribunal emphasized that substantial investment towards acquiring a new property, evidenced by an allotment letter and payment proof, should satisfy the requirements of section 54.

3. Compliance with Time Limits:
The AO noted that the assessee did not purchase the new property within the prescribed period of one year before or two years after the transfer of the old property, nor was the new house constructed within three years. The Tribunal, however, highlighted that the delay in construction was beyond the assessee's control and that the substantial investment made should be deemed sufficient compliance with section 54. The Tribunal found that the assessee had indeed complied with the requirements of section 54, and the exemption was incorrectly denied by the lower authorities.

4. Levy of Interest under Sections 234A, 234B, and 234C:
The assessee also raised an additional ground regarding the levy of interest under sections 234A, 234B, and 234C. The Tribunal noted that since the assessee was allowed relief on account of exemption under section 54, the levy of interest under these sections would be consequential, and no specific determination was necessary.

Conclusion:
The Tribunal concluded that the assessee's claim for exemption under section 54 was valid and directed the authorities to allow the exemption. The appeal was allowed, and the order was pronounced in the open court on 19th August 2015.