2023 (1) TMI 1011 - AT - Income Tax

Revision u/s 263 - benefits of Section 54/54F - PCIT was of the view that assessee has made a wrong calculation of the capital gains primarily for reason that he considered property to be not held for 36 months, accordingly, had directed Ld. AO to examine the issue afresh and withdraw the deduction claimed and granted to the assessee u/s 54F - HELD THAT - It can be observed that the order u/s 263 dated 05.03.2018 was directory in nature and Ld. AO had complied the same and in this appeal the revenue cannot agitate that there was not substantial compliances of the order u/s 263. Remedy may be some where else. So, the ground no. 1 to 5 are superfluous and also as nothing specific were argued in regard to them they are decided against Revenue. Acquisition of the three properties by the assessee, otherwise then by the registered sale deeds fall in the ambit of word purchase used u/s 54/54F of the Act - The purchase of immovable property involves acquiring all those interests in the property. Same may be by some inchoate instruments in favour of the purchaser. Non execution of a registered document of transfer of title may have civil consequences in regard to his title, qua rights between the seller and purchaser but for the purpose of benefits of Section 54/54F, the assessee shall be deemed to have purchased the properties. As for the purpose of Section 54/54F of the Act, the important question is that money out of LTCG should be paid/spent by the assessee, before the end of statutory period, for claiming exemption. When the Ld. AO had not doubted the payments out of LTCG made by assessee for purchase of three properties with inchoate documents executed in favour of the assessee. Then for not having the sale deed executed in his favour, assessee cannot be said to have not Purchased the properties as a statutory compliance. Thus, the findings of Ld. CIT(A) in this regard require no interference. Residential nature of these three properties Ld. CIT(A) has thoroughly examined the issue. The 1st property situated lies in Tehsil Mehrauli, New Delhi. It is claimed by the assessee to be farm house and the house tax receipt issued by South Delhi Municipal Corporation mentioning that property is used for residential purpose was rightly relied by Ld. CIT(A) to hold that property purchased was residential property. Ld. CIT(A) has also examine expenditures made in cash and supported with cash withdrawals from the bank for the construction to make the property habitable. As with regard to 2nd property situated village Atmalpur in Haridwar. Ld. CIT(A) had rightly examined the fact of expenditure of Rs. 2,23,500/- on the construction raised for using it as a residence. As with regard to 3rd property at Atmal in Haridwar. Ld. CIT(A) has considered the fact that it is admitted to have a construction cottage. The bench is of considered opinion that the nature and extent of construction or nomenclature like house, plot, cottage, farm house or villa are only indicative of the fact that property purchased is not a commercial property and is not an agricultural property. They all convey residential house property. How it is inhabited should not interest the revenue. Ld. AR has also impressed this by citing a judgment of Om Prakash Gyal 2012 (8) TMI 547 - ITAT JAIPUR where it has been held that only requirement for claiming exemption under Section 54F is construction of residential house and it does not matter that house constructed is on agricultural land. Thus Ld. CIT(A) has rightly taken into consideration all the aspects of the matter while partly allowing the appeal of assessee and no interference is called for in the same. The remaining grounds no. 6 to 13 are also decided against the revenue on the basis of aforesaid findings.

Summary

Issues Involved:

1. Validity of the order passed by the AO u/s 143(3) r.w.s. 263.
2. Classification of capital gains as short-term or long-term.
3. Eligibility for deduction under Section 54F of the Income Tax Act.
4. Nature of properties purchased and their qualification as residential properties.
5. Acceptance of additional evidence by CIT(A) in contravention of Rule 46A.
6. Proof of construction on the purchased properties within the stipulated period.

Issue-wise Detailed Analysis:

1. Validity of the Order Passed by the AO u/s 143(3) r.w.s. 263:

The revenue contended that the AO did not follow the directions of the CIT-23, New Delhi given in the order u/s 263, thereby vitiating the assessment proceedings. However, the tribunal observed that the order u/s 263 was directory in nature, and the AO had complied with it. Thus, grounds 1 to 5 were deemed superfluous and decided against the revenue.

2. Classification of Capital Gains as Short-term or Long-term:

The CIT-23, New Delhi, in the order u/s 263, had held that the capital gains arising from the sale of the plot of land at Karawal Nagar, Delhi, was short-term as the holding period was less than 36 months. The AO treated the gain as long-term, which was contested by the revenue. However, the tribunal found that the AO's classification was based on a thorough examination of the facts, and the CIT(A)'s decision to treat it as long-term capital gain was upheld.

3. Eligibility for Deduction under Section 54F:

The revenue argued that the assessee was not eligible for deduction u/s 54F as the properties purchased were not residential units. The tribunal, however, upheld the CIT(A)'s decision, which allowed the deduction, stating that the acquisition of properties through GPA or agreements to sell falls within the ambit of 'purchase' under Section 54/54F. The tribunal emphasized that the important factor is the expenditure of LTCG for purchasing properties within the statutory period, not the execution of a registered sale deed.

4. Nature of Properties Purchased and Their Qualification as Residential Properties:

The tribunal examined the nature of the three properties in question:

- First Property (Tehsil Mehrauli, New Delhi): The assessee claimed it as a farmhouse, and the house tax receipt indicated it was used for residential purposes. The CIT(A) relied on this to hold it as a residential property.
- Second Property (Village Atmalpur, Haridwar): The CIT(A) examined the expenditure on construction and concluded it was used as a residence.
- Third Property (Atmal, Haridwar): The CIT(A) noted it had a construction cottage, indicating it was a residential property.

The tribunal agreed with the CIT(A)'s findings that these properties were residential, and the nomenclature or extent of construction did not alter their residential nature.

5. Acceptance of Additional Evidence by CIT(A) in Contravention of Rule 46A:

The revenue contended that the CIT(A) accepted additional evidence in contravention of Rule 46A. However, the tribunal found that the CIT(A) had thoroughly examined the evidence and judicial pronouncements, concluding that the transactions fell within the ambit of 'purchase' under Section 54/54F.

6. Proof of Construction on the Purchased Properties within the Stipulated Period:

The revenue argued that the assessee did not provide sufficient proof of construction within the stipulated period. The tribunal, however, upheld the CIT(A)'s findings that the assessee had made expenditures on construction, supported by cash withdrawals from the bank, and that the properties were indeed residential.

Conclusion:

The tribunal dismissed the revenue's appeal, upholding the CIT(A)'s decision to allow the assessee's claim under Section 54F. The tribunal emphasized that the important factor for claiming exemption under Section 54/54F is the expenditure of LTCG for purchasing properties within the statutory period, not the execution of a registered sale deed. The tribunal found no reason to interfere with the CIT(A)'s findings and concluded that the properties purchased by the assessee were residential.