2017 (8) TMI 1254 - AT - Income Tax

Denying the exemption to the Appellant u/s 54F - Property is purchased in the wife s name and amount paid for purchase is from loan sanctioned jointly in assessee and his wife s name in the loan sanction letter - whether the investment in the new property can be treated as investment made by the assessee - Held that - We find that the wife of the assessee is an independent taxpayer having her own sources of income. - it cannot be said that the assessee has made investment for purchase of the property due to the reason that loan has been primarily sanctioned to the wife of the assessee, who is having title over the property and the assessee has been joined in the loan for the purpose of repayment of the loan. The repayment of loan by the assessee is a transaction different from the transaction of investment in the property. Moreover, the assessee has not submitted any evidence of repayment of loan by him. - Benefit of exemption denied - Decided against the assessee. Payments towards construction/renovation in the new property - Held that - For verification of the fact that payments of ₹ 10 lakh and 20 lakh paid respectively on 07/01/2008 and 13/01/2008 were towards construction or renovation of the new property, we feel it appropriate to restore the issue to the file of the Assessing Officer, with the direction to the assessee to produce / furnish all necessary evidence in support that construction/renovation work as mentioned in finishing agreement was carried out by seller of the property. In this regard, the assessee should furnish copy of return of income of the seller and income expenditure account showing such receipts from contract work and expenses incurred by her for carrying out construction/renovation work on the property or any other evidences which could establish that work of construction/renovation was actually carried out in the property and the said payment of ₹ 10 lacs and 20 lacs were towards such construction/renovation. If the amounts are found to be towards construction of the new property, then the Assessing Officer is directed to consider the deduction u/s 54F of the Act in accordance with law. Exemption under section 54F in respect of the consideration of ₹ 2 Lacs received by the assessee in cash - Held that - there is no dispute that the amount of ₹ 2 lacs is part of sale consideration and the long-term capital gain on sale of the property. Since we have partly restored the issue of deduction under section 54F of the Act, in respect of the investment of ₹ 30 Lacs, we also restore the issue of claim of deduction u/s 54F of the Act against the sale consideration of ₹ 2 lacs to the file of the Assessing Officer for consideration in accordance with law.

Summary

Issues Involved:

1. Denial of exemption under section 54F of the Income Tax Act, 1961.
2. Jurisdictional error by the CIT(A).
3. Investment in new asset in the name of the wife.
4. Traceability of investment in the new property to the sale proceeds.
5. Violation of judicial discipline by CIT(A).
6. Non-adjudication of exemption claim for cash consideration received.

Detailed Analysis:

1. Denial of Exemption under Section 54F:
The assessee, a Chartered Accountant, filed a return declaring a total income of ?48,23,250/- for the assessment year 2009-10. He claimed a deduction under section 54F for long-term capital gains of ?33,74,045/- from the sale of a vacant plot. The Assessing Officer (AO) denied the deduction on two grounds: the assessee owned more than one residential house at the time of transfer, and the new property was purchased with a loan, not from the sale proceeds. The CIT(A) accepted that one of the properties was not residential but denied the deduction because the new property was purchased in the wife’s name and the investment was not traceable to the sale proceeds.

2. Jurisdictional Error by CIT(A):
The assessee argued that the CIT(A) exceeded jurisdiction by addressing issues not raised by the AO. However, this was not separately adjudicated as it was interconnected with the main issue of section 54F exemption.

3. Investment in New Asset in the Name of the Wife:
The assessee contended that the investment in the new property, though in the wife’s name, should qualify for exemption under section 54F. He cited the Delhi High Court’s decision in CIT Vs. Ravindra Kumar Arora, which held that the property need not be purchased solely in the assessee’s name. However, the Tribunal noted that in the cited case, the entire investment came from the assessee, whereas in this case, the property was purchased with a loan in the wife’s name, who is an independent taxpayer.

4. Traceability of Investment in the New Property to the Sale Proceeds:
The CIT(A) observed that the sale proceeds were deposited in accounts held jointly with the assessee’s father, and the new property was purchased with a loan. The Tribunal upheld this finding, noting that the investment was not made by the assessee but through a loan primarily sanctioned to his wife. The Tribunal concluded that the assessee did not make the investment and upheld the disallowance of the exemption.

5. Violation of Judicial Discipline by CIT(A):
The assessee argued that the CIT(A) did not follow the precedent set by the Delhi Tribunal and High Court. The Tribunal, however, found that the facts of the case were distinguishable from the cited precedents, as the investment was not made by the assessee but through a loan to his wife.

6. Non-Adjudication of Exemption Claim for Cash Consideration Received:
The assessee received ?2,00,000/- in cash as part of the sale consideration but did not declare it. The AO added this amount to the long-term capital gain. The Tribunal restored this issue to the AO for reconsideration, noting that the investment in the new property was far in excess of the long-term capital gain, and the deduction claim should be reconsidered.

Conclusion:
The appeal was partly allowed for statistical purposes. The Tribunal upheld the CIT(A)’s decision on the primary issue of section 54F exemption but restored the issue of additional investment and cash consideration to the AO for further verification and reconsideration. The decision emphasized the need for the assessee to provide evidence of repayment of the loan and the actual use of sale proceeds for the investment in the new property.