2014 (6) TMI 364 - AT - Income Tax

Deletion made u/s 54 of the Act - Investment in purchase of Jay Pee Greens flat Application of capital gains towards purchase of flat Essential criteria of purchase of property not actually taken place - Held that - Following CIT Vs. R.L. Sood 1999 (9) TMI 27 - DELHI High Court - where an assessee paid substantial amount in terms of purchase agreement for new residential flat within specified period it amounts to assessee s compliance for requirement of sec. 54 - Merely because the builder failed to hand over possession within specified period, assessee could not be denied benefit of benevolent provision of sec. 54 - the applicability of CBDT Circular no. 471 dated 15-10-1986 is upheld - the circular finds further reinforcement by issue of CBDT Circular no. 672 dated 16-2-1993 - the assessee invested entire amount of capital gains towards purchase of new property remains unquestionable, thus, the exemption is clearly allowable the investment in flat irrespective of the delivery of possession by builder has been held to be investment in purchase or construction of new flat Decided against Revenue. Benefit of cost of improvement Held that - Following BB. Sarkar Versus Commissioner Of Income-Tax, West Bengal IV 1981 (5) TMI 21 - CALCUTTA High Court - the investment incurred towards improvement of the new house purchased by the assessee to make it habitable would go towards amount invested for purchase of new asset Decided against Revenue.

Summary

Issues involved:
1. Denial of exemption u/s 54 for investment in property at Jay Pee Green Greater Noida due to delayed possession.
2. Reduction of exemption u/s 54 for investment in property at Model Town, Delhi, towards cost of improvement.

Analysis:

Issue 1: Denial of exemption u/s 54 for investment in property at Jay Pee Green Greater Noida due to delayed possession:
The assessing officer denied the exemption u/s 54 on the grounds that possession of the property was not delivered within the stipulated period, thus not fulfilling the conditions of section 54(2). The Revenue contended that until possession is granted, the investment cannot be considered as a purchase, relying on the decision in the case of Suraj Lamps & Industries. However, the assessee argued that substantial payment made for the property within the specified period should be considered compliance with section 54, citing the decision in CIT Vs. R.L. Sood. The ITAT agreed with the assessee, emphasizing that the investment in the property was unquestionable, and the exemption was allowable, dismissing the Revenue's appeal.

Issue 2: Reduction of exemption u/s 54 for investment in property at Model Town, Delhi, towards cost of improvement:
Regarding the investment in the property at Model Town, Delhi, the assessing officer reduced the exemption u/s 54 by denying the claim for cost of improvement, stating that it does not fall under the scope of "purchase or construction" as per section 54. The Revenue relied on the decision in the case of Kiran Bansal to support this position. However, the assessee argued that the amount spent was for making the property habitable, citing the decision in the case of B.B. Sarkar. The ITAT agreed with the assessee, holding that the cost of improvement to make the house habitable should be considered as part of the amount invested in the purchase of the new asset, dismissing the Revenue's appeal on this ground as well.

In conclusion, both the Revenue's appeal and the assessee's cross-objections were dismissed by the ITAT, upholding the CIT(A)'s decision to allow the assessee's claims for exemption u/s 54 in both instances.