2017 (7) TMI 353 - AT - Income Tax

Eligibility to deduction u/s 54 - Held that - The provisions of section 54 of the Act are beneficial and are to be considered liberally for reasonable bonafide cause but investment in residential property is mandatory which the assessee has proved with substantial evidence before the lower authorities. Prime facie, the total amount paid for acquisition of new Flat got constructed through the builder much before the extended due date under section 139(4) of the Act. The assessee has direct investment in house property and therefore not opted in capital gain account scheme. The assessee entered into construction agreement and agreement for land purchase on 03.02.2011, which was not at all disputed by the Department, very much before provisions of section 139(1) of the Act. In the case of Jagtar Singh Chawla of Punjab and Haryana High Court 2013 (4) TMI 499 - PUNJAB AND HARYANA HIGH COURT the assessee has paid substantial amount for purchase of residential property before the extended due date of filing of return and the assessee was eligible for exemption and not liable to pay any capital gain tax. Assessee complied the conditions and is eligible for exemption under section 54 of the Act - Decided in favour of assessee.

Summary

Issues:
Cross appeals against the order of the ld. Commissioner of Income Tax (Appeals) regarding the restriction of exemption under section 54 of the Income Tax Act, 1961 for the assessment year 2012-13.

Analysis:
The assessee claimed exemption under section 54 of the Act for the investment made in a flat at Pune. The Assessing Officer disallowed the exemption as the conditions under section 54(2) were not met. The Assessing Officer observed that a habitable residential house property should exist before the due date of filing the return of income under section 139(1) of the Act, or the capital gains should be deposited in a specified account. The ld. CIT(A) restricted the exemption to the amount utilized before the due date of filing the return and confirmed the addition of the balance amount. The Tribunal found that the assessee had complied with the conditions and was eligible for exemption. Citing judicial decisions, the Tribunal allowed the full LTCG exemption under section 54 of the Act, as the investment was made in the residential property before the due date under section 139(4) of the Act.

The Tribunal noted that the assessee had made substantial payments towards the property before the extended due date of filing the return. Relying on precedents and the liberal interpretation of the provisions, the Tribunal held that the assessee had met the conditions for exemption under section 54. The Tribunal set aside the order of the ld. CIT(A) and directed the Assessing Officer to grant the full LTCG exemption. Consequently, the appeal filed by the assessee was allowed.

As the Tribunal allowed the grounds raised by the assessee regarding the LTCG exemption under section 54, the appeal filed by the Revenue against the restriction of the disallowance was deemed not maintainable and dismissed. The final decision pronounced on April 3, 2017, in Chennai favored the assessee, allowing their appeal and dismissing the Revenue's appeal.