2020 (4) TMI 360 - AT - Income Tax

Deduction u/s. 54 - delay towards the impugned construction period - As per AO vacant land is not assessed to the property tax and it does not have an Electricity connection and hence, he disallowed the assessee s claim of deduction u/s. 54 and assessed the assessee s income under the head long term capital gains - assessee submitted that he did not get approval for construction due to an order of the Madras High Court as it restricted the construction of plots at unauthorised lay outs - HELD THAT - Though the assessee had invested the sale consideration in acquiring the vacant plots, obtained the planning permission on 29.03.2016 with the condition that the appellant should start the construction within 6 months ie before on or before 29.09.2016, by the time the appellant was about to start the construction, the Hon 'ble Madras High Court had given a Judgment restricting the registration of plots at unauthorized layouts or any flats/building constructed at such plots in Writ Petition number 19566 of 2015 dated 09.09.2016. This means that any plots which are not approved by CMDA shall not be permitted for registration or for any other activity like construction after 09.09.2016. Hence the appellant could not start the construction and was waiting for the final outcome of the Judgment. Ultimately, when the legal and procedural environment became clear, the assessee constructed it after 13th Oct 2017. Therefore, we are of the view that the assessee is entitled to the benefits of deduction u/s 54, as the delay towards the impugned construction period is beyond his control and not attributable to him. Therefore, we direct the AO to treat as if construction is made within time . Since the A O has not examined the other conditions in relation to the grant of deduction u/s 54 , we remit the issue back to A O for a fresh examination . After affording effective opportunity to the AO , the A O shall pass the order in accordance with law. Assessee s appeal partly allowed for statistical purposes

Summary

Issues:
1. Deduction u/s. 54 claimed by the assessee disallowed by AO.
2. CIT(A) confirming the order of AO.
3. Assessee's appeal against the CIT(A)'s decision.

Analysis:
1. The assessee sold a property and invested in vacant lands for claiming deduction u/s. 54. The AO disallowed the deduction as the land remained vacant without construction within the stipulated time frame. The AO assessed the income under long term capital gains. The CIT(A) upheld the AO's decision, stating that the circumstances cited by the assessee did not allow for discretion in granting the deduction.

2. The assessee argued before the ITAT that due to a High Court order restricting construction in unauthorized layouts, he could not start construction within the specified period. The ITAT noted the sequence of events, including the legal restrictions and subsequent actions taken by the assessee. The ITAT found that the delay in construction was beyond the assessee's control and not intentional. Therefore, the ITAT directed the AO to treat the construction as made within time and remitted the issue back to the AO for further examination of the conditions for granting deduction u/s. 54.

3. The ITAT's decision allowed the appeal partly, emphasizing that the delay in construction was due to legal restrictions and circumstances beyond the assessee's control. The ITAT directed the AO to re-examine the issue of deduction u/s. 54 after considering all relevant aspects. The appeal was treated as partly allowed for statistical purposes, with the order pronounced on 22nd January 2020 at Chennai.