2016 (3) TMI 52 - AT - Income Tax

Addition made under long term capital gain - claim u/s 54 denied - cost of acquisition considered by assessee rejected - determination of date of transfer - Held that - The liberal interpretation of the term purchase as it appear in section 54 has to be given also to the term constructs appearing therein, in conjunction to the former. Even the Hon ble jurisdictional High Court in the case of CIT Vs Smt B.S.Shanthakumari 2015 (8) TMI 274 - KARNATAKA HIGH COURT held that completion of construction within three years period was not mandatory and what was necessary was that the construction should have commenced. There cannot be any dispute with the construction in the property for which agreement was entered by the assessee with Mrs Mary Susan had already began. In our view, the question whether the above agreement finally fructified is a different matter altogether. Assessee had in our opinion for all purposes satisfied the conditions u/s 54 of the IT Act, 1961, and earnestly demonstrated his intention to invest the capital gain in a residential house. We are therefore, of the considered opinion, that the assessee ought not have been denied the claim u/s 54 of the IT Act, 1961. The disallowance of such claim stands deleted. Since we have allowed the claim u/s 54 of the Act, the question of computation of cost of purchase of the property sold becomes academic. - Decided in favour of assessee

Issues Involved:
1. Delay in filing the appeal.
2. Addition under long-term capital gain denying the claim under Section 54 of the IT Act, 1961.
3. Non-consideration of the cost of acquisition claimed by the assessee.

Detailed Analysis:

1. Delay in Filing the Appeal:
The appeal was filed with a delay of 333 days. The assessee attributed the delay to pursuing proceedings before the Central Administrative Tribunal (CAT) and dealing with a serious illness of his daughter. The department had no objection to condoning the delay, and hence, the delay was condoned, and the appeal was admitted.

2. Addition under Long-Term Capital Gain Denying the Claim under Section 54 of the IT Act, 1961:
The assessee sold a property and did not show any capital gains in his return of income, claiming the entire sale amount was given to his brother for acquiring another property. However, the transaction with his brother did not materialize, and the amount was refunded. The refunded amount was partly deposited in a capital gains deposit scheme and later used to pay for another property, which also did not materialize.

The Assessing Officer (AO) was skeptical of the initial oral agreement with the brother and found no evidence of the capital gains deposit. The AO also denied the exemption under Section 54, as the property was never registered in the assessee's name.

The CIT(A) upheld the AO's decision, stating the agreements did not create enforceable rights and the conditions under Section 54 were not satisfied, especially the requirement to purchase or construct a residential house within the stipulated time frame.

Upon appeal, it was argued that the intention to invest in a residential house was clear from the beginning. The assessee had entered into an agreement with Mrs. Mary Susan and later with M/s Shobha Developers Ltd. The failure of the other parties to honor their commitments should not penalize the assessee.

The Tribunal noted that Section 54 allows for an exemption if the capital gains are used to purchase or construct a residential house within specified periods. The Tribunal referenced judgments that supported a liberal interpretation of the term "purchase" and the importance of the intention to invest in a residential house.

The Tribunal found that the assessee had demonstrated a clear intention to invest in a residential house and had taken substantial steps towards this goal, satisfying the conditions under Section 54. Therefore, the claim under Section 54 was allowed.

3. Non-Consideration of the Cost of Acquisition Claimed by the Assessee:
Since the claim under Section 54 was allowed, the issue of computing the cost of acquisition of the property sold became academic and was not addressed in detail.

Conclusion:
The appeal filed by the assessee was treated as allowed, with the Tribunal deleting the disallowance of the claim under Section 54 of the IT Act, 1961. The order was pronounced in the open court on February 19, 2016.

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