2021 (5) TMI 638 - AT - Income Tax

Revision u/s 263 - LTCG - Exemption u/s 54F - Investment on construction of a new residential house on one plot and second plot was adjacent - HELD THAT - If the amount required for exemption u/s.54F has been properly invested in the new house, the claim cannot be denied simply because the construction was not completed within the period of three years. As and when the target of investment of the eligible amount is achieved within a period of three years, the assessee earns exemption u/s.54F notwithstanding that he may continue to invest more on such new house beyond the given period. Since the law simply provides for investing the net consideration of the earlier transferred property as a sine qua non for claiming the exemption and not the completion of construction of the new residential house, such a condition cannot be read in the provision, as has been canvassed by the ld. PCIT. Other objection taken by the ld. PCIT is that the assessee claimed to have invested a sum of ₹ 1.42 crore which was not reflected either in the balance sheet or in the capital account of the assessee. On the contrary, we find from the Departmental paper book itself that the assessee did furnish Fine Living Residential House A/c. as on 30-09-2014 with investment of ₹ 1.42 crore as on 30-09-2014. Thus, this view point of the ld. PCIT also does not stand. Another objection taken by the ld. PCIT is that the assessee claimed purchase cost of Plot Nos.28 and 29 in the sum total for the purposes of exemption u/s.54F, whereas the permission for construction was taken only in respect of Plot No.28. As seen that both the plots, namely, 28 and 29 were simultaneously purchased and are adjacent to each other. The assessee has claimed that both the plots were used for construction of new residential house. Simply because the application for construction was given only with reference to Plot No.28, the claim for actual investment in Plot No.29, qualifying for exemption u/s.54F, cannot be denied. Be that as it may, even if we proceed with the presumption that the assessee constructed new residential house only on Plot No.28, still Plot No.29 adjacent to new residential house will form part of new residential house thus entitling the assessee to exemption pro tanto . The next objection taken by the ld. PCIT is that the AO failed to enquire and verify the issue of cost of construction which should have been done. Here again, the ld. PCIT is not correct. Not only this issue was verified by the AO but the necessary evidence to corroborate the assessee s claim was also placed before him, which is evident from the Fine Living Residential House deciphering investment of ₹ 1.42 crore in the new house. DR submitted that the commencement of construction certificate was issued on 20-08-2014 whereas the assessee claimed to have invested a sum of ₹ 1.42 crore as on 30-09-2014. We find from the details of Fine Living residential house that a sum of ₹ 55.04 lakh was invested in purchase of two plot Nos. 28 and 29. This leaves with a sum of ₹ 87.00 lakh which has been invested by the assessee towards purchase of cement, steel, sand, bricks, murum and soiling, labour payment and other construction expenses. Except for casting a doubt, the ld. DR could not point out as to how the spending of ₹ 87.00 lakh within a period of 1 month and 10 days was not possible. Mere doubt cannot lead to the revision of an order unless it is shown that either the AO failed to apply his mind on the issue or he applied his mind but his view was wrong in facts or in law. None of the conditions is satisfied in the instant case. In view of the foregoing discussion, we are satisfied that the ld. PCIT failed to make out a proper case for revision of the assessment order passed u/s.143(3) of the Act. Ergo, the impugned order is overturned. Appeal is allowed.

Summary

Issues:
1. Incorrect allowance of exemption u/s.54F for construction of a new residential house.
2. Non-submission of completion certificate for construction within three years.
3. Discrepancy in claimed investment amount and lack of reflection in financial statements.
4. Claiming exemption for two plots while permission was for one.
5. Alleged failure of AO to verify cost of construction.

Issue 1: Incorrect allowance of exemption u/s.54F for construction of a new residential house:
The assessee declared long term capital gain from the sale of land and claimed exemption u/s.54F for investing in a new house. The Principal Commissioner of Income-Tax (PCIT) alleged that the AO did not conduct proper inquiry and allowed the exemption erroneously. However, the Tribunal found that the assessee had submitted necessary details during assessment, including a ledger account showing the investment of the claimed amount. The AO had inquired about the deduction u/s.54F, and upon verification, no disallowance was made. Therefore, the Tribunal concluded that the AO had examined the issue adequately, and the PCIT's revision under section 263 was unwarranted.

Issue 2: Non-submission of completion certificate for construction within three years:
The PCIT contended that the completion certificate for construction was not submitted within three years, leading to the denial of exemption u/s.54F. However, the Tribunal clarified that the section requires investment within three years, not completion within that period. As long as the eligible amount is invested in the new house, the exemption is valid even if construction extends beyond three years. The Tribunal noted that the completion certificate's timing did not affect the exemption claim, especially when the investment was duly made within the stipulated period.

Issue 3: Discrepancy in claimed investment amount and lack of reflection in financial statements:
The PCIT raised concerns about the claimed investment amount not being reflected in the assessee's financial statements. Contrary to this, the Tribunal found evidence in the departmental records where the investment amount was clearly stated. The Tribunal concluded that the claimed investment was substantiated and dismissed the PCIT's objection.

Issue 4: Claiming exemption for two plots while permission was for one:
The PCIT objected to the assessee claiming exemption for two plots while construction permission was granted for one. The Tribunal observed that both plots were purchased together and used for construction. Even if permission was specific to one plot, the adjacent plot formed part of the new residential house, entitling the assessee to exemption. The Tribunal upheld that the claim for exemption on both plots was valid.

Issue 5: Alleged failure of AO to verify cost of construction:
The PCIT alleged that the AO did not properly inquire into the cost of construction, which should have been verified. However, the Tribunal found that the AO had examined the issue and was presented with evidence supporting the construction expenses. The Tribunal noted that mere doubts raised by the PCIT were insufficient to revise the assessment order. It concluded that the AO had applied due diligence, and the PCIT failed to establish grounds for revision. Therefore, the Tribunal allowed the appeal, overturning the PCIT's order.

This comprehensive analysis of the legal judgment highlights the key issues raised, the arguments presented, and the Tribunal's detailed reasoning in addressing each concern effectively.