2020 (9) TMI 574 - AT - Income Tax

Revision u/s 263 - exemption u/s 54 - HELD THAT - Development Agreement is crystal clear that the land has been transferred along with the house property and that it is also the responsibility of the developer to demolish the house property standing on the said property. These facts have been analyzed by the AO through notice u/s 142(1) and questionnaire and even the replies submitted by the assessee were placed on record. Only reasons for which CIT decided that the assessee is entitled to exemption u/s 54F and not u/s 54 because as per the Development Agreement, the term owner appears therein referring to the assessee. Clauses of the Development Agreement where the entire transfer of house property along with the land given to the developer, these facts were not refuted by the DR. DR also could not place on record any evidence categorically showing that there was transfer of development rights only by the assessee. Exemption u/s 54 of the Act is correctly claimed by the assessee. Claim of exemption u/s 54EC - There is categorical finding of the Ld. CIT that for ₹ 50 lakhs, NHAI bonds invested were made in time, then why the assessee could not comply the law for other ₹ 17 lakhs which were invested also in NHAI bonds. Assessee could not explain anything in front of us at the time of hearing. We further find that the AO in his entire order has not discussed anything on this issue of investment of ₹ 17 lakhs in NHAI bonds by the assessee and whether they were according to the prescribed time limits as per section 54EC. AO has not given any reasoning or view in this matter. He has simply accepted the claim of the assessee granting exemption under the said provision. Assessee fairly conceded that there was a delay with regard to time limits prescribed in the statute for the said investment. When this issue has not been verified by the AO nor any independent enquiry conducted, nor any questions raised and when these facts are clear that in this issue the provisions of section 54EC has not been complied with by the assessee, the action of AO therefore, is erroneous and prejudicial to the interest of Revenue. CIT in his order passed u/s 263 is correct in holding that the assessee is not entitled for the claim of exemption u/s 54EC. Assessee is entitled for deduction u/s 54 since there is transfer of residential house property as observed hereinabove and for this part of the appeal, the assessee succeeds. Regarding the deduction claimed u/s 54EC assessee has not made the investment within stipulated time and this fact was also not examined by the Assessing Officer and the provisions of section 54EC were not satisfied by the assessee on this ground. The findings of Ld. CIT as per 263 order is sustained on this issue. Appeal of the assessee is partly allowed.

Summary

Issues:
1. Jurisdiction of CIT u/s 263 of the ITA, 1961
2. Exemption u/s 54 vs. 54F of the ITA, 1961
3. Exemption u/s 54EC of the ITA, 1961

Jurisdiction of CIT u/s 263 of the ITA, 1961:
The appeal challenged the CIT's jurisdiction under section 263 of the Income-tax Act, 1961, contending that the order passed by the AO was not erroneous. The CIT directed the AO to disallow exemption u/s 54 and instead allowed exemption u/s 54F, citing that only development rights were transferred. However, the Development Agreement indicated the transfer of both land and a residential bungalow, contradicting the CIT's view. The AO had allowed exemption u/s 54 for the construction of a new residential flat based on the agreement. The ITAT held that the spirit of the agreement showed the transfer of the house property along with the land to the developer, justifying the assessee's claim for exemption u/s 54.

Exemption u/s 54 vs. 54F of the ITA, 1961:
The CIT contended that only exemption u/s 54F could be claimed as the assessee transferred only development rights, not the entire house property. However, the ITAT analyzed the Development Agreement and found that the house property along with the land was indeed transferred, contrary to the CIT's assertion. The possession given by the assessee included the entire real estate, supporting the claim for exemption u/s 54. The ITAT emphasized that the CIT's decision was unfounded as the agreement clearly indicated the transfer of the house property, qualifying for exemption u/s 54.

Exemption u/s 54EC of the ITA, 1961:
Regarding the claim of exemption u/s 54EC, the AO allowed the claim without considering the investment in NHAI bonds within the stipulated period. The CIT found the AO's decision erroneous, stating that the delay in investment was not justified. The assessee argued that the delay was unintentional due to circumstances, citing judicial precedents to support condoning the delay. However, the ITAT upheld the CIT's decision, noting that the reasons for delay were insufficient and did not qualify as extreme circumstances. The failure to invest within the prescribed time rendered the claim for exemption u/s 54EC invalid, as the provisions were not complied with.

In conclusion, the ITAT partially allowed the assessee's appeal, granting deduction u/s 54 due to the transfer of the residential house property. However, the claim for exemption u/s 54EC was denied as the investment in NHAI bonds was not made within the specified timeframe, upholding the CIT's decision on this issue.