2016 (12) TMI 1735 - AT - Income Tax

Exemption u/s 54 - Long Term Capital Gains (LTCG) - construction of new residential property - failure to deposit the unutilized amount in the capital gain accounts scheme - Held that - assessee is entitled for cost of construction in respect of Residential property, even though the assessee has not invested in capital gain accounts scheme but complied the main condition, of the provisions of the section 54(i) of the Act. Accordingly, we remit the disputed issue to the file of the Assessing Officer to consider the deduction u/s. 54 of the Act for construction cost incurred by the assessee as above and Assessing Officer should provide adequate opportunity to the assessee to substantiate their cost of construction before passing the order on merits. - Decided in favor of assessee.

Summary

Issues Involved:
1. Computation of Long Term Capital Gains on the sale of property.
2. Eligibility for exemption under Section 54 of the Income Tax Act.
3. Validity of the CIT(A)'s confirmation of the Assessing Officer's order.
4. Applicability of CBDT Circular No. 667 dated 18.10.1993.
5. Compliance with conditions for claiming exemption under Section 54.

Issue-wise Detailed Analysis:

1. Computation of Long Term Capital Gains on the sale of property:
The assessee sold a residential house property in New Delhi on 15.01.2010 for ?12,50,00,000, resulting in Long Term Capital Gains of ?10,47,95,925. The dispute arose regarding the computation of these gains and the eligibility for exemption under Section 54 of the Income Tax Act.

2. Eligibility for exemption under Section 54 of the Income Tax Act:
The assessee claimed exemption under Section 54 for the purchase of land and construction of a new residential property. The property was purchased on 14.04.2007, and the new construction was completed within three years from the date of sale of the old property. The Assessing Officer denied the exemption for the land purchase, arguing it did not comply with Section 54 provisions and was not invested in a capital gain account scheme.

3. Validity of the CIT(A)'s confirmation of the Assessing Officer's order:
The CIT(A) confirmed the Assessing Officer's order, restricting the exemption to ?1,14,81,067. The CIT(A) followed the Assessing Officer's reasoning without providing independent justification, which the assessee argued was erroneous.

4. Applicability of CBDT Circular No. 667 dated 18.10.1993:
The assessee relied on CBDT Circular No. 667, which emphasizes the term "Completed" in the context of construction. The assessee argued that the exemption should be allowed if the construction is completed within three years from the sale of the old property, regardless of when the land was purchased.

5. Compliance with conditions for claiming exemption under Section 54:
The Tribunal reviewed the facts and judicial decisions, noting that the assessee complied with the main condition of constructing the new property within three years. Although the assessee did not deposit the capital gains in a capital gain account scheme, the Tribunal considered the provisions of Section 54 as beneficial and to be construed liberally. The Tribunal remitted the issue to the Assessing Officer to consider the deduction for the construction cost incurred by the assessee and to provide an opportunity for the assessee to substantiate their costs.

Conclusion:
The appeal was allowed for statistical purposes, with the Tribunal directing the Assessing Officer to reconsider the deduction under Section 54 for the construction cost, ensuring the assessee is given a fair opportunity to present their case. The order was pronounced on 27th December 2016 in Chennai.