2021 (3) TMI 412 - AT - Income Tax

Disallowing Section 54F claim in respect of alleged investment in residential house/property - both the lower authorities held the assessee as not entitled for the impugned deduction since neither any capital gains had arisen from transfer of her capital asset nor had she reinvested the same in a residential house so as to be eligible u/s.54F - CIT(A) made detailed discussion that the assessee had also failed to prove such a re-investment in a new residential property by filing cogent detailed evidence - HELD THAT - We find no merit in Revenue s stand in principle. This is for the reason that it has adopted self-contradictory stand. Meaning thereby that on the one hand it has alleged that since the assessee had received developed commercial area from the developer in lieu of the capital asset handed over to the latter thereby not resulting in any capital gains or consideration money, it has, however, treated an equal sum as assessable under the head long term capital gain . We thus see no reason to accept the Revenue s stand on these mutually contradictory lines. Reinvestment of assessee s capital gains by utilising her joint family s funds - Assessee s detailed paper book filed on 09-02- 2021 placing on record all the relevant details of her house constructed in plot Nos.30 and 31, Magadha Village, Kokapet, Rajendra Nagar Mandal, R.R.District purchased on 21-09- 2005 followed by sanction of construction dt.16-06-2007 and completed on 18-05-2012. We hold in this factual backdrop that larger interest of justice would be met in case the Assessing Officer examines the entire issue of re-investment of assessee s capital gains in the above stated property afresh. Assessee s appeal is treated as allowed for statistical purposes.

Issues Involved:
1. Disallowance of Section 54F claim for investment in a residential house/property.
2. Examination of the nexus between the sale consideration of the original asset and the investment in the new asset.
3. Assessment of the eligibility for exemption under Section 54F based on the sources of investment funds.

Detailed Analysis:

1. Disallowance of Section 54F Claim:
The primary issue in this appeal is the disallowance of the assessee’s Section 54F claim regarding the investment of ?63,90,560 in a residential property at Magadha Village, Hyderabad. The CIT(A) noted that the assessee entered into a Joint Development Agreement (JDA) with M/s. Western Constructions and received built-up commercial space instead of monetary consideration. The assessee claimed to have invested in the construction of a new house property but failed to provide sufficient details about the property, such as the approved plan, completion certificate, and occupancy certificate, leading to questions about the genuineness of the investment.

2. Nexus Between Sale Consideration and Investment:
The CIT(A) emphasized the need for a direct nexus between the sale consideration received from the original asset and the investment in the new asset. The assessee was found to have invested only ?6,43,300 from her own funds, with the remaining amount sourced from third parties. The CIT(A) referred to several judicial precedents, including Kaushal Kishore Maheshwari Vs [2017] 85 taxmann.com 205 (Delhi-Trib.), T.Ramesh Vs.ITO, and Milan Sharad Ruparel Vs ACIT, which held that investments made from borrowed funds or funds belonging to others do not qualify for exemption under Section 54F.

3. Eligibility for Exemption Under Section 54F:
The CIT(A) concluded that the assessee was not eligible for the exemption under Section 54F since she failed to establish the required nexus and did not invest her own funds. The CIT(A) also noted that the assessee misquoted case laws and tried to mislead the appellate authority, which was deemed uncalled for in quasi-judicial proceedings. The CIT(A) further clarified that even if the assessee were eligible, the exemption should be restricted to ?6,43,300, the amount invested from her own sources.

Appellate Tribunal’s Decision:
The Appellate Tribunal considered the rival pleadings and found the Revenue’s stand self-contradictory. On the one hand, the Revenue argued that no capital gains arose due to the receipt of commercial space, but on the other hand, it assessed a sum of ?1,94,35,276 as long-term capital gains. The Tribunal noted the assessee’s detailed submissions and evidence regarding the construction of the house property and held that the larger interest of justice would be served by remanding the issue back to the Assessing Officer for a fresh examination of the reinvestment of capital gains. The Tribunal directed the Assessing Officer to complete the reassessment within three effective opportunities of hearing, with the assessee or her representative appearing before the Officer by 31st July 2021.

Conclusion:
The appeal was allowed for statistical purposes, with the order pronounced in the open court on 8th March 2021.

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