2018 (10) TMI 1750 - AT - Income Tax

Deduction u/s. 54 - denial of claim as agreement for acquisition of property is unregistered agreement - whether CIT(A) erred in allowing the exemption on the ground that the construction of property was not complete nor its possession was received by the assessee within the mandatory period prescribed under the Act - HELD THAT - As noted that there is no dispute with regard to the date of sale of old property. The only objection of the A.O was that the agreement for acquisition of new property dated 27/11/2011 is merely an unregistered agreement to purchase a property proposed to be constructed and that the said agreement cannot be constituted as a proof of purchase of property for claim of deduction u/s. 54. There is no agreement entered by the assessee with the developer before due date of filing of return. CIT(A) after considering the submission and evidences concluded that on the date of agreement of sale on 17/11/2011, the assessee has paid 85% of total cost of the said flat. The agreement could not be registered by appropriate authority as commencement certificate was not issued to the builder/developer. The developer vide its confirmation dated 07.12.2014 confirmed this receipt of consideration of ₹ 3.26 crores. Right in respect of property have been created in favour of the assessee. In ITO vs. Saroja Naidu 2016 (12) TMI 546 - ITAT CHENNAI held that the assessee had made the investment for construction of flat by making payment to builder. The builder had defaulted due to which delay had occurred in construction of the flat within the time limit prescribed under the Act. The fault of the builder is beyond the control of the assessee whose intention was only bonafide to comply with the provisions of the Act for entitling the benefit of deduction under section 54 of the Act. - Decided against revenue.

Summary

Issues:
- Allowance of deduction u/s. 54 of I.T. Act
- Completion of construction and possession within stipulated period
- Validity of unregistered agreement for property purchase
- Legal precedents supporting exemption u/s. 54

Analysis:
1. The appeal by the revenue challenges the order of the ld. Commissioner of Income-tax(Appeals) for Assessment Year 2011-12, concerning the allowance of deduction u/s. 54 of the I.T. Act. The revenue contests the claim made by the assessee for exemption under section 54, emphasizing the requirement for investment of capital gain from the transfer of a capital asset towards the purchase/construction of a residential property within the stipulated period mandated by the Act.

2. The case involves the assessee claiming exemption under section 54 for the capital gain earned on the sale of a residential house. The Assessing Officer disallowed the claim as the agreement for the acquisition of a new property was unregistered. However, the CIT(A) reversed this decision, allowing the exemption under section 54. The revenue, dissatisfied with this decision, has appealed.

3. The Revenue argued that the unregistered agreement provided by the assessee for the acquisition of the new property cannot serve as proof of purchase within the required timeframe. The Departmental Representative contended that the assessee must purchase a property within two years from the sale of the old property to claim the deduction u/s. 54.

4. The Authorized Representative for the assessee defended the claim by stating that the assessee had invested the capital gain in a new property within the stipulated period, even though the agreement could not be registered due to delays in construction caused by disputes. The AR presented evidence, including the allotment letter and payment details, to support the claim.

5. Legal precedents cited by the AR supported the contention that substantial investment of the capital gain in a new house suffices for claiming deduction u/s. 54, even if the construction is not completed within the specified period. These precedents emphasized the importance of the intention to comply with the Act's provisions for availing the deduction.

6. The Tribunal, after considering the submissions and evidence, upheld the decision of the CIT(A) to allow the exemption u/s. 54. It was noted that the completion of construction within the time limit was not a mandatory condition for granting the exemption, as long as a substantial investment was made within the prescribed period.

7. The judgment was supported by legal interpretations from various High Courts and Tribunals, emphasizing that the utilization of capital gain for the construction of a residential house within the specified period suffices for claiming exemption u/s. 54, irrespective of registration or completion status. The intention to invest and comply with the Act's provisions was considered crucial.

8. The Tribunal affirmed the decision based on the factual discretion and legal precedents cited, dismissing the revenue's appeal. The judgment highlighted the importance of the assessee's bona fide intention to comply with the Act's requirements for availing the benefit of deduction under section 54.

In conclusion, the Tribunal upheld the allowance of deduction u/s. 54 for the assessee, emphasizing the significance of substantial investment within the prescribed period and the bona fide intention to comply with the statutory provisions.