2018 (4) TMI 325 - AT - Income Tax

Exemption u/s. 54 - LTCG - assessee had availed house building loan from bank for purchasing a new residential unit - Held that - Section 54 of the Act provides that the assessee has to purchase a house property for the purpose of his own residence within the period of one year on or after the date on which the transfer of property took place or assessee should have constructed a house property within a period of 2 years after the date of transfer. - It is clear from the AO s order that the assessee sold his residential units during the financial year 2009-10 and purchased a new residential flat, got its possession on 17-06-2010 and it is well within time prescribed in the Act involving section 54 and thereby the assessee is entitled to claim exemption u/s. 54 - Merely because assessee had availed house building loan of ₹ 82.50 lacs from bank for purchasing a new residential unit, that cannot act as a disqualification for claim of exemption u/s 54 when the primary conditions imposed in Sec. 54 of the Act were satisfied. - Decided in favour of assessee

Summary

Issues involved:
- Denial of exemption u/s. 54 of the Act by the Commissioner of Income Tax (Appeals)

Detailed analysis:
The only issue in this case was whether the Commissioner of Income Tax (Appeals) was justified in confirming the order of the Assessing Officer (AO) in denying exemption u/s. 54 of the Act. The appellant, an individual engaged in a commission agency for car finance and other products, claimed capital gain as exempt u/s. 54 of the Act. However, the AO found that the appellant did not invest the capital gain in purchasing a new residential unit as required by the provisions of section 54. The AO disallowed the claim and added the amount to the total income of the appellant under Long Term Capital Gains (LTCG) u/s. 54 of the Act. The Commissioner of Income Tax (Appeals) considered the submissions of the appellant and restricted the addition towards capital gains. The appellant argued that the denial of exemption was not justified and referred to relevant case laws to support the claim.

The Appellate Tribunal, after hearing the rival submissions and examining the case laws relied upon by the appellant, found that the cost of the new residential unit was more than the capital gain noted by the AO and the Commissioner of Income Tax (Appeals). The Tribunal observed that part of the capital gain was utilized by the appellant for investment in a new residential unit within the specified time period. The Tribunal noted that the facts of the case were similar to a decision of the Hon’ble High Court of Punjab & Haryana, which clarified the requirements of section 54 of the Act. The High Court held that the appellant was entitled to claim exemption u/s. 54 as the conditions of the provision were satisfied. The Tribunal emphasized that availing a house building loan for purchasing a new residential unit did not disqualify the appellant from claiming exemption u/s. 54 when the primary conditions of the Act were met. The Tribunal referred to previous judicial pronouncements to support its decision.

Based on the above analysis, the Tribunal concluded that the Commissioner of Income Tax (Appeals) was not justified in restricting the addition towards capital gains. The Tribunal set aside the order of the Commissioner of Income Tax (Appeals) and directed the Assessing Officer to delete the impugned addition. Consequently, the Tribunal allowed the grounds of the appellant’s appeal challenging the denial of exemption u/s. 54 of the Act. The appeal of the appellant was allowed, and the order was pronounced in open court on 04-04-2018.