2017 (6) TMI 773 - AT - Income Tax

Legality of notice issued under section 143(2) - non proper serving of notice - Held that - The assessee has not furnished any second address for communication when the assessee was out of station; since the assessee is suppose to do so. When the Department made sincere steps to serve notice and when it was not possible, the notice was served through affixture, which is one of the modes of service of notice as defined in the provisions of CPC. Therefore, we are of the considered opinion that the notice has been served properly and legally. - Decided against assessee Denial of exemption under section 54 - sale proceeds of the old house (sold) are not invested in acquiring the new residential property within the stipulated time limits - Held that - Admittedly, the assessee has entered into an agreement with the builder on 18.11.2004. The land (UDS) relating to the said flat (new property) was registered on 18.05.2005. Further, possession of the new property was taken by the assessee in October, 2006. All these dates are far before the stipulated period of one year prior to the date of sale of the old property on 26.09.2008. Otherwise also, anything that was purchased or constructed prior to 26.09.2007 was not eligible for deduction under section 54 of the Act. Thus, the assessee is not eligible for deduction under section 54 of the Act. The ld. CIT(A) has passed well reasoned detailed speaking order after analysing the documents and submissions made before him.- Decided against assessee

Issues Involved:
1. Validity of notice issued under section 143(2) of the Income Tax Act, 1961.
2. Denial of exemption under section 54 of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Validity of Notice under Section 143(2):

The first issue concerns the validity of the notice issued under section 143(2) of the Income Tax Act, 1961. The assessee contended that the notice was not properly served, rendering the assessment order under section 143(3) invalid. The facts reveal that the notice was initially issued on 24.08.2009 and returned unserved with the remark "door locked." The Inspector was then directed to serve the notice by affixture on 30.09.2010 after finding the door locked again and obtaining signatures from two witnesses.

The assessee argued that the notice was not served properly as it was received only on 18.07.2011 by the security guard and handed over to the assessee on 26.07.2011. The CIT(A) observed that sincere efforts were made by the Income Tax Officials to serve the notice in the normal course, and when that was not possible, the notice was served through affixture, which is a valid mode of service under the provisions of the Code of Civil Procedure, 1908.

The Tribunal upheld the CIT(A)'s decision, stating that the service of notice through affixture was proper and legal, and the assessment proceedings under section 143(3) were within the jurisdiction of the Assessing Officer. The ground raised by the assessee was dismissed.

2. Denial of Exemption under Section 54:

The second issue pertains to the denial of exemption under section 54 of the Income Tax Act, 1961. The assessee sold a residential house for ?74,00,000 and claimed a deduction of ?35,54,495 under section 54 for purchasing a new residential house. The Assessing Officer disallowed the claim, noting that the sale proceeds were used to repay a loan taken from IDBI Bank for purchasing the new house, which did not qualify for exemption under section 54.

During appellate proceedings, the assessee explained that an MOU was entered into on 10.04.2006 for selling the old house, but it did not materialize. The new house was purchased by availing a loan from IDBI Bank before the old house was sold. The sale proceeds of the old house were used to repay the loan.

The CIT(A) observed that the new house was purchased much before the stipulated period of one year prior to the date of sale of the old house. The relevant dates were:
- Agreement with builder: 18.11.2004
- Registration of land (UDS): 18.05.2005
- Possession of new property: October 2006

Since these dates were before the one-year period prior to the sale of the old house (26.09.2008), the assessee was not eligible for deduction under section 54. Additionally, repayment of the loan availed for purchasing the new house does not qualify for deduction under section 54.

The CIT(A) also disallowed the claim for cost of improvement due to lack of evidence. The Tribunal upheld the CIT(A)'s decision, finding no reason to interfere with the well-reasoned order. The grounds raised by the assessee were dismissed.

Conclusion:

In conclusion, the Tribunal dismissed the appeal filed by the assessee on both grounds. The notice under section 143(2) was deemed properly served, and the denial of exemption under section 54 was upheld due to non-compliance with the stipulated time limits and lack of evidence for cost of improvement. The order was pronounced on 03rd April, 2017 at Chennai.

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