2017 (2) TMI 989 - AT - Income Tax

Entitlement for exemption under section 54F - whether the assessee will be entitled for the benefit of deduction U/s. 54F of the Act if he demolished the new asset being the residential house purchased by him within the period of three years from the date of purchase in violation to Section 54F(3) - Held that - The Parliament in its wisdom had enacted Section 54F of the Act in the Finance Act, 1982 with a view to encourage housing construction. Thus the intention of the legislation was not for destruction of residential building but for promoting the construction of the residential housing units. If the benefit of section 54 is extended where the new residential building is demolished without constructing another residential building within the time limit prescribed under the Act, then the purpose of the Act is defeated. As rightly pointed out by CIT(Appeals), as in the case CIT Vs. V.Pradeep Kumar & another 2006 (4) TMI 99 - MADRAS High Court it has been categorically held that the burden is on the assessee to prove that he had actually constructed a new residential house for the purpose of the exemption under section 54F. Section 54F emphasizes construction of residential house. The construction must be a real one. It should not be a symbolic construction. Mere construction by way of extension of the old existing house would not mean constructing a residential house as contemplated under section 54F. In view of intentions of the Act, decisions of the Hon ble Jurisdictional High Court and the facts and circumstances of the case, we do not find it necessary to interfere with the order of the learned Commissioner of Income Tax (Appeals) on this issue wherein he has held that in the case of the assessee exemption under section 54F cannot be granted since he has demolished the newly acquired residential house instantly for the purpose of construction of a six floored shopping complex.- Decided against assessee Unexplained investment u/s.69 - Held that - As before us, at this stage, the assessee has not produced any evidence or advanced any argument justifying his stand and could not substantiate the reason for the discrepancy. Therefore, we do not have any option but to confirm the order of the learned Commissioner of Income Tax (Appeals) on this issue also. - Decided against assessee

Summary

Issues Involved:
1. Entitlement to exemption under Section 54F of the Income Tax Act for ?1,08,00,000 invested in a residential building.
2. Addition of ?7,34,750 as unexplained investment under Section 69 of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Entitlement to Exemption under Section 54F of the Act:
The primary contention was whether the assessee was entitled to the exemption under Section 54F of the Income Tax Act for ?1,08,00,000 invested in a residential building. The assessee had sold properties and invested the proceeds in a residential property, claiming the benefit under Section 54F. However, the assessee demolished the purchased residential building and began constructing a commercial complex. The Assessing Officer (AO) disallowed the exemption, which was upheld by the Commissioner of Income Tax (Appeals) [CIT(A)].

The CIT(A) observed that the intention behind Section 54F was to encourage house construction, not commercial development. The demolition of the residential building and subsequent construction of a commercial complex did not align with the purpose of the exemption. The CIT(A) cited several judgments, including K.M. Natarajan vs. ITO and ACIT vs. Oilip Manhar Parekh, to support the decision. The Tribunal agreed with the CIT(A), emphasizing that the demolition of the residential house within three years of purchase violated the conditions of Section 54F(3). The Tribunal noted that the intention of the legislation was to promote residential housing, not commercial development, and upheld the CIT(A)'s decision denying the exemption.

2. Addition of ?7,34,750 as Unexplained Investment under Section 69 of the Act:
The second issue pertained to the addition of ?7,34,750 as unexplained investment under Section 69 of the Income Tax Act. The assessee had entered into an agreement to purchase a flat and declared the transaction in his return of income. However, during a survey, it was revealed that the actual purchase price was higher than what was declared. The AO added the difference as unexplained investment, which was confirmed by the CIT(A).

The Tribunal noted that the assessee failed to provide any evidence or justification for the discrepancy in the declared and actual purchase price. Consequently, the Tribunal upheld the CIT(A)'s decision, confirming the addition of ?7,34,750 as unexplained investment under Section 69.

Conclusion:
Both appeals filed by the assessee were dismissed. The Tribunal upheld the CIT(A)'s decisions on both issues, denying the exemption under Section 54F due to the demolition of the residential property and confirming the addition of ?7,34,750 as unexplained investment under Section 69. The order was pronounced in the open court on November 30, 2016.