2022 (12) TMI 656 - AT - Income Tax

Deduction u/s 54 - At residential plots that no construction was carried out till date and the plots were vacant - CIT(A) observed that the fact remains that the appellant could not complete the construction of residential houses upon the said plots within specified period of three years as the investment was made by the appellant in the plots which were not having approvals from the concerned government departments for the construction ab initio - HELD THAT - Objective of Section 54 is that the capital gains to be reinvested in another residential house. The provision emphasizes the investment of amount in new property within the timelines as per Section 54, but not completion of the property so as to be occupied or become habitable even. There may be many intervening factors which make it unreasonable and against the rules of prudence to expect the investor to also have completed the construction in three years. But then the law requires the gain to be statutorily invested. Here in the case in hand total capital gain exemption was 1,62,76,703/- and which now has been restricted to the claim to the extent of investment of sum of Rs. 78,60,000/- in first property and the investments in two other properties have not been pressed for exemptions. Admitted case of assessee that income had accrued in FY 2014-15 and after the developer got approved zonal plan, the assessee obtained physical possession of the plot vide letter dated 18.08.2022 and though before that the assessee got approved the construction plan by making application with competent authority. However, construction has not begun. There is no evidence of any construction activity or of the fact that assessee has invested the proceeds in statutory deposits and then spent any proceeds of the sales consideration of two properties he had sold, into the construction over this plot. Thus the property in which part investments of capital gains was done continued to be plot for all purposes and intent, for the assessee in the period when construction was to atleast to be started, if not completed. That being so, there is no error in the determination of issue against the assessee by Ld. tax Authorities below and no merits in the grounds as raised here. The appeal is dismissed.

Issues Involved:
1. Reasonable opportunity of hearing
2. Determination of income
3. Exemption from long-term capital gain under Section 54 and 54F
4. Disallowance of exemption due to non-construction of residential house
5. Reliance on inspector's report without confrontation
6. Applicability of Delhi High Court decision in CIT vs. Kuldip Singh
7. Charging of interest under Sections 234A, 234B, 234C, and 234D

Detailed Analysis:

1. Reasonable Opportunity of Hearing:
The assessee contended that the assessment order was invalid as the Assessing Officer (AO) did not provide a reasonable opportunity of hearing. However, this issue was not elaborately discussed in the judgment, and the appeal was dismissed without specific reference to this ground.

2. Determination of Income:
The CIT(A) upheld the AO's determination of income at Rs. 2,02,65,513/- instead of the returned income of Rs. 39,88,810/-. The AO added the exempt income of Rs. 1,62,76,703/- under Section 54 to the assessee's income, as the conditions for exemption were not met.

3. Exemption from Long-term Capital Gain under Section 54 and 54F:
The assessee claimed exemption under Section 54 for capital gains arising from the sale of two residential properties, arguing that the amount was invested in three properties. The AO found that no construction was carried out on the plots, and thus, the exemption was disallowed. The CIT(A) observed that the plots did not have necessary approvals for construction from the beginning, and the exemption claim was invalid as per Section 54/54F.

4. Disallowance of Exemption Due to Non-construction of Residential House:
The assessee argued that construction could not be carried out due to the developer not handing over possession. The CIT(A) noted that the appellant could not complete the construction within three years, and the investment in plots without necessary approvals was not eligible for exemption. The Tribunal upheld this view, emphasizing that the law requires the reinvestment of capital gains in a new residential house within specified timelines, irrespective of construction completion.

5. Reliance on Inspector's Report Without Confrontation:
The assessee claimed that the AO relied on an inspector's report without confronting the assessee and issued a show-cause notice before receiving the report. The Tribunal did not find merit in this argument and upheld the findings of the lower tax authorities.

6. Applicability of Delhi High Court Decision in CIT vs. Kuldip Singh:
The assessee cited the Delhi High Court decision, arguing that disallowance should only be made to the extent of uninvested amounts after the three-year period. The Tribunal referred to various judicial precedents, including the Supreme Court's liberal interpretation of Section 54, but concluded that the assessee did not meet the statutory requirements for exemption, as no construction was initiated within the stipulated period.

7. Charging of Interest under Sections 234A, 234B, 234C, and 234D:
The assessee challenged the charging of interest under these sections. The Tribunal upheld the lower authorities' decision without specific discussion on this ground.

Conclusion:
The Tribunal dismissed the appeal, stating that the assessee did not fulfill the conditions for exemption under Section 54, as the investments in plots without necessary approvals and lack of construction activity did not meet the statutory requirements. The appeal was dismissed, and the order was pronounced in the open court on 14th December 2022.

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