2023 (9) TMI 687 - AT - Income Tax

Deduction u/s 54 - investment in new House Property within prescribed time or not? - as purchase date did not lie within one year before so, the AO opined that the claim of exemption u/s 54 of the Act is not admissible - HELD THAT - We find that on the touchstone of SH. AKSHAY SOBTI, SH. PRADEEP SOBTI, SMT. SEEMA SOBTI 2020 (1) TMI 407 - DELHI HIGH COURT in the present case, the agreement for sale can be construed as agreement of construction. So the assessee has a window upto 11.11.2014 to construct the house property. The date of grant of possession can be construed as completion of construction. Hence, the assessee deserves to succeed on account of construction of house within 3 years of the date of sale/transfer of the original asset - Appeal of the assessee is allowed.

Summary

Issues Involved:
The issues involved in this case are the admissibility of exemption from long-term capital gains u/s 54 of the Income-tax Act, 1961, pertaining to the assessment year 2012-13.

Issue 1: Assessment made by the Assessing Authority u/s 143(3) and confirmed by CIT (Appeals) - Admissibility of exemption u/s 54:
The Assessing Officer (AO) noted that the assessee sold immovable property during the relevant financial year and earned long-term capital gains, which were claimed as exempt u/s 54. The AO observed that the agreement to purchase the new residential property was made beyond the stipulated date, rendering the claim of exemption inadmissible. The AO opined that the claim of exemption u/s 54 was not admissible due to the timing of the agreement to purchase the new asset falling outside the prescribed period.

Issue 2: Appeal before CIT (A) and rejection of claim:
The assessee appealed before the CIT (A), arguing that the claim was based on the construction of a new flat, not the purchase of a new residential house. The assessee contended that possession of the flat was received within the stipulated 3-year period after the sale, supporting the claim with relevant documents. However, the CIT (A) held that the purchase of the house was not made within the prescribed period, and the agreement to sell was beyond the allowable timeframe, thus rejecting the claim for exemption u/s 54.

Issue 3: Appeal before ITAT Delhi and decision based on precedent:
The assessee appealed before the ITAT Delhi, citing a decision of the Hon'ble Delhi High Court in a similar case. The ITAT Delhi considered the precedent and compared the facts of the case with the cited judgment. It was determined that the agreement for sale could be construed as an agreement for construction, allowing the assessee the requisite time to construct the house property. Consequently, the ITAT Delhi ruled in favor of the assessee, allowing the appeal and granting the exemption based on the construction of the house within the specified period.

This judgment highlights the importance of adhering to the specific provisions of the Income-tax Act, particularly concerning exemptions such as u/s 54 for long-term capital gains. The decision underscores the significance of timelines and the nature of transactions in determining the eligibility for such exemptions, as evidenced by the detailed analysis and application of legal principles in this case.