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2024 (6) TMI 71 - AT - Income TaxLTCG - exemption u/s 54F for investment in residential house - determination of residential nature of the property - CIT(A) deleted the addition holding that the assessee has purchased a house Makan , hence the exemption u/s 54F is to be allowed - HELD THAT - The inquiries conducted by this office, therefore, establishes that the claimed investment of Rs. 1.84 crore was not in the purchase of a residential house but was for the purchase of a land .It may be seen that the nature of the property purchased by the assessee is not a residential house but an urban agricultural land where some constructed area was existing when the assessee purchased it. This structure may have been used for any purpose but there is nothing on record to prove that it was a residential house. The sub-Registrar has clarified that the stamp duty of Rs. 33,99,500/- was charged for registration for agricultural land and Rs. 20,500 was charged for against the covered area. There was no mention of a residential house in the documents. The enquiries conducted by the revenue authorities have clearly proved with photographic evidences that the area has been used for concrete brick manufacturing unit run by one Sh. Bharat Bhushan under the name of M/s Surabh Ferrocon. As gone through the lease deed submitted along with the paper book which shows that the land has been given on rent of some of the building and open parking area when there was no such building existing as per records. Further, at point no. 7, it mentions that the premises should be used only for residential purpose of its staff whereas there was no dwelling unit available at the said premises. Further, the enquiries and the photographs clearly proves that the said land was used for manufacturing of concrete, bricks (page 20 of AO). Hence, no credence can be given to the rent agreement or the subsequent notices. Section 54F demands reinvestment of the capital gains in new residential property to qualify for exemption. The provision was brought in to encourage individuals to reinvest their gains into new housing thereby fostering home ownership, stable investment growth and to augment the growth of other industries like Iron Steel, Cement providing employment, engaging labour and ultimately industrial economic growth of the country. Before parting, we want to clarify that we are of firm opinion that the size of the residential house is not a criteria for claiming of exemption u/s 54F. The very fact that whether there existed any residential house and whether the assessee constructed any house subsequent to purchase of the land has not been proved in this case. At the same time, it has also been proved by the Revenue that there is no such residential dwelling or the residential house which entitle to assessee for exemption u/s 54F. Thus, based on the evidences collected, collated, examined, verified and investigated by the revenue authorities, the covered area which is shed of 500 mtr. on the agricultural land cannot be considered as a residential house. Hence, we hold that the claim of the assessee for exemption u/s 54F has been rightly denied by the AO. Decided against assessee.
Issues Involved:
1. Classification of the transaction as 'capital gains' vs. 'adventure in the nature of trade'. 2. Allowance of cost of improvement and indexation. 3. Eligibility for exemption u/s 54F. 4. Claim of exemption u/s 54B. Issue 1: Classification of the transaction as 'capital gains' vs. 'adventure in the nature of trade' The Assessing Officer (AO) classified the transaction of sale of land as an 'adventure in the nature of trade' rather than 'capital gains'. The CIT(A) disagreed, treating the transaction as 'capital gains'. The Tribunal upheld the CIT(A)'s decision, citing various judgments including G. Venkataswami Naidu & Co. Vs. CIT and Jankiram Bahadur Ram vs. CIT, which emphasized that holding land for a long period and making improvements for better sale price does not constitute an adventure in the nature of trade. Issue 2: Allowance of cost of improvement and indexationThe AO disallowed the full cost of improvement claimed by the assessee, stating that the payments were unverifiable and partly made in cash. The CIT(A) allowed the full cost of improvement and indexation, which the Tribunal affirmed, noting that the improvements made were necessary to make the land saleable. The Tribunal also noted that the AO did not make sufficient inquiries to disprove the assessee's claims. Issue 3: Eligibility for exemption u/s 54FThe AO denied the exemption u/s 54F, arguing that the property purchased was not a residential house but agricultural land with a small structure used for commercial purposes. The CIT(A) allowed the exemption, stating that the land included a residential house. The Tribunal reversed the CIT(A)'s decision, agreeing with the AO that the property did not qualify as a residential house based on the evidence, including photographs showing a brick manufacturing unit on the land. Issue 4: Claim of exemption u/s 54BThe assessee's claim for exemption u/s 54B was initially not allowed by the CIT(A) because it was not filed with the return. The Tribunal referred the matter back to the AO to examine the eligibility for exemption u/s 54B based on the date of purchase of the property. Conclusion:The Tribunal upheld the CIT(A)'s decision on treating the transaction as 'capital gains' and allowing the cost of improvement. However, it reversed the CIT(A)'s decision on the exemption u/s 54F, agreeing with the AO that the property was not a residential house. The matter of exemption u/s 54B was referred back to the AO for further examination. Order Pronounced in the Open Court on 30/05/2024.
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