2021 (7) TMI 900 - AT - Income Tax

Deduction u/s 54F denied - assessee owning 5 residential houses on the date of transfer of villa Nos.24 and 25 - contention of the assessee is that at the time of sale of the property, assessee was not in possession of more than one residential house as the villas handed over to assessee by Ambience Properties Limited are not in habitable condition and that they are semi-finished villas - HELD THAT -Settlement has been done for extra works to be carried out by the developer. Earlier, as per the Joint Development Agreement-cum-General Power of Attorney, the assessee was supposed to receive 5 Villas, which must have been complete villas, which had been allotted and ; the settlement agreement is only for extra works to be carried out by the developer. It is also not clear that what extra works to be done. It is also not clear from the submissions of the assessee that what was incomplete in the building and what works have to be carried out in the same to be fully habitable. As per the JDA, it must have been allotted complete villas. In view of the above observations, we observe that the arguments advanced by the ld. AR are wrong and not proper that on the date of allotment the villas allotted were inhabitable conditions. The case laws relied on by the ld. AR are not applicable to the case of the assessee. Also, even before us, the assessee failed to substantiate its claim that the developer has handed over semi-finished villas with documentary evidence in this connection, we are of the view that merely writing/ mentioning that the developer has allotted semi-finished villas is not sufficient to claim as the assessee has to substantiate the same by way of documentary evidence that upto what extent the works were completed in the villas and what works are pending to get fully furnished villas - Decided against assessee.

Issues Involved:
1. Whether the CIT(A) erred in upholding the AO's disallowance of the exemption claimed under Section 54F of the Income Tax Act, 1961.
2. Whether the villas owned by the assessee were in a habitable condition on the date of transfer of the original asset.
3. Whether the assessee provided sufficient documentary evidence to substantiate the claim that the villas were semi-finished and not fit for dwelling.
4. Whether the assessee's investment in the Capital Gains Account Scheme qualifies for the exemption under Section 54F.
5. Whether the assessee's subsequent actions and documentary evidence support the claim for exemption under Section 54F.

Detailed Analysis:

Issue 1: CIT(A)'s Upheld Disallowance of Exemption under Section 54F
The assessee contended that the CIT(A) erred in law and on facts by upholding the AO's order, which disallowed the exemption claimed under Section 54F of the Income Tax Act, 1961. The AO had disallowed the exemption on the grounds that the assessee owned more than one residential house on the date of transfer of the original asset. The CIT(A) upheld this view, leading to the present appeal.

Issue 2: Habitability of the Villas
The assessee argued that the villas handed over by the developer were not in a habitable condition and were semi-finished. The AO and CIT(A) held that the villas were residential houses as per the Joint Development Agreement (JDA) and that minor pending works did not alter their nature. The CIT(A) noted that the JDA did not specify that the villas would be handed over in a semi-finished condition and that the villas were expected to be habitable by common parlance.

Issue 3: Documentary Evidence for Semi-Finished Condition
The assessee provided a letter from the developer stating that additional work was required to make the villas habitable. However, the AO and CIT(A) found this letter to be an afterthought and not credible. The CIT(A) observed that the assessee failed to provide documentary evidence to prove that the villas were not in a habitable condition when handed over. The unregistered supplementary agreement describing the villas as "semi-finished" was also considered an afterthought.

Issue 4: Investment in Capital Gains Account Scheme
The assessee claimed exemption under Section 54F by investing in the Capital Gains Account Scheme. The CIT(A) and AO noted that the assessee did not invest the amount in acquiring a new residential property within three years, leading to the inclusion of the amount as income in the AY 2016-17. The assessee argued that the amount was declared as income and appropriate tax was paid, but this did not affect the disallowance for AY 2013-14.

Issue 5: Subsequent Actions and Documentary Evidence
The assessee cited legal precedents where inhabitable houses were not equated with residential houses. However, the AO and CIT(A) distinguished these cases on facts. The assessee also referred to a settlement agreement involving extra work to be carried out by the developer. The Tribunal found that the settlement agreement did not clearly specify the extent of incomplete work and that the villas should have been complete as per the JDA.

Conclusion:
The Tribunal upheld the CIT(A)'s order, agreeing that the assessee failed to provide sufficient documentary evidence to prove that the villas were semi-finished and not habitable. The Tribunal dismissed the appeal, affirming that the assessee was not eligible for the exemption under Section 54F as claimed. The decision emphasized the need for concrete documentary evidence to substantiate claims regarding the condition of the property for tax exemption purposes.

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