2021 (12) TMI 506 - AT - Income Tax

Correctness of deduction claimed u/s.54F - purchase of residential flat by the assessee on 09.05.2016 at Mumbai whether it amounts to purchase of a new asset or construction of a new asset - AO regarded the acquisition of the flat as amounting to purchase of a new flat as purchased beyond the period of 2 years from the date of sale of the industrial lands and hence, the assessee had not complied with the conditions for grant of exemption since the purchase was made 5 days after the period of 2 years had expired - HELD THAT - The date of purchase of the new asset is admittedly on 09.05.2016 which falls within the previous year relevant to Assessment Year 2017-18. The date of transfer is on 05.05.2014 falling within the previous year 2015- 16. In terms of proviso to section 54F(4) of the Act, the non-utilisation of net consideration deposited in the capital gain scheme account can be considered only in Assessment Year 2018-19. We are therefore of the view that the directions given by the CIT(A) holding that the purchase of a new flat will not amount to putting up construction and therefore the benefit of deduction will not be available to the assessee is a finding which is not necessary to be given in the appeal for AY 2015-16. The question whether the acquisition of flat by the assessee would amount to construction or purchase, is a issue which ought to have been left open by the CIT(A) for consideration in AY 2018-19. We leave this issue open for decision in Assessment Year 2018- 19. DR, however submitted that directions may be given to the AO, to take appropriate remedial action in Assessment Year 2018-19. We are of the view that it would be just and appropriate to make an observation that the AO will take appropriate measures as is open to the Revenue in law. With these observations, we allow the appeal of the assessee. Assessee appeal allowed.

Summary

Issues Involved:
1. Delay in filing the appeal.
2. Eligibility for deduction under Section 54F of the Income-tax Act.
3. Compliance with the provisions of Section 54F(4) regarding deposit in the capital gains account scheme.
4. Classification of the acquisition of a new residential flat as 'purchase' or 'construction'.

Issue-wise Detailed Analysis:

1. Delay in Filing the Appeal:
The assessee filed the appeal with a delay of 64 days, attributed to incorrect advice from her son. The Tribunal accepted the explanation, considering her dependency on her son for tax matters, and condoned the delay.

2. Eligibility for Deduction under Section 54F:
The assessee sold two pieces of industrial land and claimed a deduction under Section 54F for reinvestment in a new residential house. The AO scrutinized the correctness of the deduction and found discrepancies in the assessee's initial and revised computations of capital gains. The assessee's revised computation showed a reduced deduction under Section 54F, which was scrutinized further.

3. Compliance with Section 54F(4) - Capital Gains Account Scheme:
The AO denied the deduction under Section 54F, citing non-compliance with the deposit requirement in the capital gains account scheme. However, the assessee provided evidence of depositing ?3,05,00,000 in the capital gains account with Corporation Bank. The CIT(A) accepted this evidence and directed the AO to allow the deduction proportionate to the amount deposited and verify the utilization of funds.

4. Classification of Acquisition - 'Purchase' vs. 'Construction':
The AO and CIT(A) classified the acquisition of the new flat as a 'purchase,' not 'construction,' as the agreement with the developer was dated 09/05/2016, beyond the two-year limit from the sale date (05/05/2014). The assessee argued that it should be considered 'construction,' allowing a three-year period for reinvestment. The Tribunal noted that the flat was already constructed with occupancy and completion certificates issued before the agreement date, thus supporting the 'purchase' classification. However, the Tribunal decided this issue should be left open for consideration in AY 2018-19, as the relevant period for utilization of the deposited amount ends in that year.

Conclusion:
The Tribunal allowed the appeal, directing the AO to take appropriate measures in AY 2018-19 regarding the classification of the flat acquisition. The decision on whether the acquisition amounts to 'purchase' or 'construction' was deferred to AY 2018-19, with instructions for the AO to verify compliance with the capital gains account scheme provisions.