2019 (12) TMI 695 - AT - Income Tax

Benefit of deduction u/s 54 - construction could not be started within the stipulated time and added the same amount in the income of the assessee on account of long term capital gain - HELD THAT - We note that during the year under consideration the assessee has sold a residential house property having her 1/3rd share therein situated at East Patel Nagar New Delhi for 100 lacs and had a long term capital gain of 81, 66, 515/-. The assessee claimed the deduction u/s 54 by investing the entire sale proceeds (aggregate investment of 1, 14, 51, 375 and details thereof as shown at page no. 39 42 41 of the Paper Book) before the due date of filing Income Tax Return u/s. 139 of the Act for the purchase of another residential property at Green Bay Gold Village Yamuna Expressway Distt. Gautam Budh Nagar UP. Construction on the said land could not be completed within the stipulated period of three years for the reasons beyond the control of the assessee i.e. Farmers agitation against Yamuna Authority related to the area in which plot was located as seen from page 21-31 of the Paper Book and change of developer as Silverglades Pvt. Ltd. sold the project to other developer Orris Infrastructure. In such circumstances we are of the view that benefit of deduction cannot be denied to the assessee. We hold that assessee is entitled to the exemption claimed by her and therefore delete the disallowance in dispute by allowing the appeal of the assessee.

Issues Involved:
1. Confirmation of addition of ?81,66,515/- under section 143(3) of the Income-tax Act, 1961.
2. Interpretation and application of section 54 of the Income-tax Act.
3. Failure to commence construction due to reasons beyond control.
4. Timing of taxation for unfulfilled conditions under section 54.
5. Levy of interest under section 234B.
6. Initiation of penalty proceedings under section 271(1)(c).

Detailed Analysis:

1. Confirmation of Addition of ?81,66,515/-:
The primary issue in this case was the confirmation of the addition of ?81,66,515/- made by the Assessing Officer (AO) under section 143(3) of the Income-tax Act, 1961. The AO denied the benefit of deduction under section 54 on the grounds that the construction of the new residential property was not completed within the stipulated time. The assessee had invested ?1,14,51,375/- in a residential plot but could not commence construction due to reasons beyond their control, such as delays by the developer and external factors.

2. Interpretation and Application of Section 54:
The assessee argued that the deduction under section 54 was rightly claimed as the entire capital gain was utilized in purchasing a residential plot before the due date for filing the income tax return. The Tribunal noted that the intention of section 54 is to provide relief for reinvestment of capital gains in another eligible property. The Tribunal emphasized that the assessee's inability to start construction was due to external factors beyond their control, such as farmers' agitation and the developer's delay.

3. Failure to Commence Construction Due to Reasons Beyond Control:
The Tribunal acknowledged that the assessee could not get possession of the plot and start construction due to reasons beyond their control. This included farmers' agitation and the developer's delay in handing over the plot. The Tribunal held that these were sufficient causes preventing the assessee from commencing construction and that the benefit of deduction under section 54 should not be denied in such circumstances.

4. Timing of Taxation for Unfulfilled Conditions under Section 54:
The Tribunal also addressed the issue of timing for taxing unfulfilled conditions under section 54. It was argued that if the conditions for investment in construction are not fulfilled within the stipulated time, the utilized amount should be taxable in the previous year in which the three-year period expires, not in the year of capital gain. The Tribunal agreed with this interpretation and noted that the AO and CIT(A) failed to understand this provision.

5. Levy of Interest under Section 234B:
The assessee contended that the CIT(A) upheld the charging of interest under section 234B without giving any directions in the assessment order. The Tribunal did not provide a specific ruling on this issue, focusing instead on the primary issue of the deduction under section 54.

6. Initiation of Penalty Proceedings under Section 271(1)(c):
The assessee also challenged the initiation of penalty proceedings under section 271(1)(c). The Tribunal did not explicitly address this issue in the judgment, as the primary focus was on the deduction under section 54.

Conclusion:
The Tribunal allowed the appeal, holding that the assessee is entitled to the exemption claimed under section 54. The disallowance made by the lower authorities was deleted, and the appeal was allowed. The Tribunal's decision was based on the interpretation that the assessee's inability to commence construction was due to reasons beyond their control, and therefore, the benefit of deduction under section 54 could not be denied. The Tribunal's ruling was supported by precedents from similar cases where the delay in construction was not attributable to the assessee.

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