2019 (8) TMI 54 - AT - Income Tax

Exemption u/s 54F denied - delay by the builder or on account of the reason for delay in allotment/construction of the flat - construction was delay by builder due to NOC from HAL and litigation - HELD THAT - It was not the case of the AO that the assessee has not booked the flat with the builder. It is also not the case of the AO that he has not made the payment to the builder in time. It is also not the case of the Revenue that there was no stay by the High Court and the matter is not sub-judice before the High Court. The only reason given by the AO is that in case the writ petition is disallowed and the relief sought is declined then the assessee would not be entitled to flat. What is required to be seen is intention of the assessee at the time of making the investment in the building project. If there was no inhibition or embargo at the time of investment at that time the assessee was entitled to the title of the residential unit then the assessee is entitled to benefit of section 54F. Assessee cannot be denied benefit of section 54F on account of delay by the builder or on account of the reason for delay in allotment/construction of the flat which are not attributable to the assessee. Undisputedly the assessee had invested the amount for purchase of flat pursuant to illegally binding agreement. However on account of withdrawal of NOC by HAL project could not be completed and the flat was not allotted to the assessee. Section 54F is a beneficial legislation and has been inserted with a view to promote investment of the long term capital gains in the building of residential premises. On account of technical reasons as mentioned above or on account of fraud or unscrupulous activities of the builder where said residential units without having proper clearance (not disclosed to the assessee at the time of booking or subsequent thereto) cannot be made a ground for denial of benefit of section 54F. In our view the assessee is entitled to benefit of section 54F. However on account of interdiction by Karnataka High Court the possession had not been handed over to the assessee. We may fruitfully apply the mechanism that no order of the court was intending to harm any person. For no fault of the assessee the assessee cannot be denied benefit of section 54F merely because the clearance of the project is pending before the Hon ble Karnataka High Court. Hence the appeal of the assessee is allowed. We rely upon the decision of Karnataka High Court in the matter of Dileep Ranjrekar 2019 (1) TMI 158 - KARNATAKA HIGH COURT and Tribunal order in the matter of Balkishan Atal vs. ACIT 1 2019 (3) TMI 476 - ITAT DELHI . - Decided in favour of assessee

Issues Involved:
1. Disallowance of exemption under Section 54 of the Income Tax Act.
2. Compliance with the requirements under Section 54F for claiming exemption.
3. Impact of unforeseen circumstances and legal disputes on the possession of the property.
4. Applicability of judicial precedents and CBDT Circulars to the case.

Detailed Analysis:

Issue 1: Disallowance of Exemption under Section 54 of the Income Tax Act
The assessee challenged the CIT(A)'s order disallowing exemption under Section 54, arguing that the disallowance was "illegal and bad in law." The assessee sold a residential property and invested the proceeds in a new residential house, complying with Section 54 requirements. The CIT(A) disallowed the exemption due to the non-possession of the new property within the stipulated period.

Issue 2: Compliance with Requirements under Section 54F for Claiming Exemption
The assessee sold a residential house on 15.04.2011 and claimed exemption under Section 54F, having invested ?1.80 crores in a new flat. A Memorandum of Understanding (MOU) was executed with the builder, Chalet Hotels Ltd., on 07.01.2011, with possession due by 30.07.2013. However, the NOC issued by HAL was revoked, leading to a legal dispute that delayed possession.

The CIT(A) upheld the Assessing Officer's (AO) disallowance, noting that the assessee neither got possession nor registered an agreement to sell within three years from the sale of the old house. The CIT(A) referenced CBDT Circular Nos. 471 and 672 but found them inapplicable as the construction was not completed within the stipulated time.

Issue 3: Impact of Unforeseen Circumstances and Legal Disputes on Possession of the Property
The builder's writ petition against HAL's NOC revocation was pending in the Karnataka High Court, which stayed construction above the 10th floor. The assessee opted for relocation within the 10th floor, but the process was delayed due to the court order. The AO and CIT(A) noted the uncertainty of flat allotment due to the ongoing litigation and potential adverse judgment.

The Tribunal observed that the assessee made a bona fide investment in the flat, and the delay was beyond his control. The Tribunal emphasized the intent of Section 54F to promote investment in residential properties and ruled that delays due to legal disputes should not penalize the assessee.

Issue 4: Applicability of Judicial Precedents and CBDT Circulars
The assessee cited several judicial precedents and CBDT Circulars supporting the view that payment for a new residential property entitles the assessee to exemption under Section 54, even if possession is delayed. The Tribunal agreed, noting that Section 54F is a beneficial provision meant to encourage investment in residential properties. The Tribunal referenced the Karnataka High Court's decision in Dileep Ranjrekar and the Tribunal's order in Balkishan Atal vs. ACIT, supporting the assessee's claim.

Conclusion
The Tribunal allowed the assessee's appeal, granting the exemption under Section 54F. It held that the assessee's bona fide investment and the delay caused by legal disputes should not disqualify him from the exemption. The Tribunal emphasized the beneficial nature of Section 54F and ruled that the assessee should not suffer due to circumstances beyond his control. The appeal was thus allowed, and the disallowance of ?91,95,570/- was overturned.

← Previous Next →