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TMI Blog2023 (8) TMI 1507X X X X Extracts X X X X X X X X Extracts X X X X ..... at the issue is still unresolved and there are no evidences on record to show that assessee has already indemnified with the tax liability. Assessee cannot utilize the funds deposited in the bank account under capital gains account scheme, it shows that it is impossible of performance and the funds is still available in the above said account unutilized. The courts have held that where the assessee has entered into an agreement with a builder and invested the capital gain for purchase of a residential unit, he is entitled to deduction u/s. 54 irrespective of the fact that builder has not completed the construction or has not yet handed over the flat [Pr. CIT v. C. Gopalswamy [ 2016 (6) TMI 643 - KARNATAKA HIGH COURT] ]. Similarly, in the present case assessee has no doubt claimed the deduction u/s. 54F and partly utilized the fund kept in the bank account under capital gains account scheme. Balance was not utilized by the assessee due to the fact that the builder stopped construction. It is a situation where assessee was not able to utilize the same under the above said circumstances, it is not proper to presume that assessee will get the indemnity from the builder and also it is f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. Brief facts of the case are, assessee is an NRI and filed his return of Income on 28.02.2018 declaring total income at Rs. 5,33,00,930/-. Assessee, has declared income from capital gains of Rs. 4,44,28,160/- and income from other sources of Rs. 88,82,769/- and claimed deduction under chapter VI-A of Rs. 10,000/-. Subsequently, assessee revised his return of income on 19.02.2019 declaring income of Rs. 88,72,770/- where in assessee has offered for taxation only income from other sources of Rs. 88,82,769/- and claimed deduction under chapter VI-A of Rs. 10,000/-. 3. The case was selected for scrutiny under CASS for complete Scrutiny for the reason that assessee has claimed large refund out of self-assessment tax and taxable income was revised in the revised return of income. 4. Facts relating to this case are assessee held 60% share in the inherited property at Bandra, Mumbai which was sold during F.Y.2013-14 to Niraj Kakad Developers Pvt. Ltd [here in after in short NKDPL ] vide sale agreement dated 25.10.2013 for a consideration of Rs. 20,88,48,040/- (assessee's share). The assessee computed capital gains of Rs. 19,85,09,802 (before exemption) and assessee has claimed deduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ailed to give me the possession of the flats booked. Due to the abovementioned default by the builder, Rs. 4,44,28,160 is still lying unutilized in the capital gains scheme account. I have already made payments amounting to about 64% of the purchase consideration for the property purchased, to the above- mentioned builder. It will be essential to pay out the remaining amount of Rs. 4,44,28,160 as and when the builder is in the position to complete the project. 3. It is worthy of noting in the above case that the purchase agreement for the new property purchased by me for claiming exemption under Section 54 contained a clause that the property will be ready in 30 months with a grace period of 6 months. However due to unfortunate circumstances and situation beyond our control the builders having run into legal troubles is unable to deliver the project. 4. I have sent him several reminders for the possession of the property as well as requesting him to accept the balance payments. 5. However, he is no position to adhere to his promises soon. 6. A suit has also been filed by me in the High court against the builder for failing to handover possession of flats to me within the stipulated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on for getting the flat registered in his name and this cannot be the reason for denying the claim of the assessee for deduction u/s 54of the Act. In view of the above facts of the case, we are of the view that the assessee entitled for deduction u/s. 54F of the Act, because the assessee has already invested sum of Rs. 18.60 lakhs in the residential property under construction within the time limit prescribed u/s. 54F of the Act. Accordingly, this issue of assessee's appeal is allowed. Reliance be also placed on the order passed by The Income Tax Appellate (Delhi) Tribunal in the case of Bal Kishan Atal v/s Assistant Commissioner of Income Tax(176 ITD 330(Delhi-Trib), where the tribunal held that: The delay in the instant case was on account of the developer and not on account ofthe assessee. The assessee had deposited the amount in capital gain account. The balance amount could not be utilised as there was a dispute and stay by the National Disputes Redressal Commission. Accordingly, for the reasons stated hereinabove, the Commissioner (Appeals) was not justified in confirming the action of the Assessing Officer and direct the Assessing Officer to delete this addition of Rs 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en deposited by assessee in the capital gains account scheme before filing of Income-tax return as required by section 54(2). 9. It has been decided in a number of cases that for the purpose of claiming exemption u/s 54, investment of substantial amount in the new asset is sufficient compliance. It has been held by various courts that in such circumstances, the assessee is entitled to claim exemption despite the fact that the construction is not completed within 3 years. This issue was addressed by the Delhi HC in the case of CIT v. RL Sood [2000] 245 ITR727/108 Taxman 227, wherein the Hon'ble HC held that the assessee having invested substantial amount in the purchase of a new asset, thus, acquiring substantial domain over the new flat within the specified period, the assessee could be said to have complied with requirement of section 54 and merely because possession of the flat was not handed over to the assessee within the specified period, the said benefit could not be denied. 10. The legislative intent of the provisions of Section 54 should be interpreted. Adding the amount as income for the Assessment year 2017-18 would entail genuine hardships on the assessee which is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax and assessee has not highlighted any other reasons for delay in the above suit. Assessing Officer observed that this shows the assessee has filed the petition only to save himself from paying legitimate tax due to department. Further, he observed that assessee has filed suit against the builder mainly on the ground of capital gains and tax liability thereon and to avoid payment of such tax. The Assessing Officer distinguished the various case law relied by the assessee in his submissions and accordingly, he rejected the contentions of the assessee and proceeded to bring the unutilized portion of the capital gains to tax of Rs. 4,99,81,680/-. 9. Aggrieved with the above order assessee preferred an appeal before the Ld.CIT(A) and Ld.CIT(A) after considering the detailed submissions interpreted the provisions of section 54 and 54F of the Act and sustained the additions made by the Assessing Officer. 10. Aggrieved with the above order, assessee is in appeal before us raising following grounds in its appeal: - 1. The return of income for assessment year 2017-18 was filed by the assessee on 28.02.2018 offering total income of Rs. 5,33,10,929 and subsequently filed a revised return off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that the assessee had already made payments amounting to about 60% of the cost of the property purchased, to the above-mentioned builder 5.2. A substantial part of the consideration has already been discharged by him and less than 40% remained payable. In the instant case the assessee had purchased a property worth Rs. 12,52,02,424 and paid Rs 7,52,20,744 to the builder which even in absolute terms is a huge amount and the balance Rs. 4,99,81,680 is also lying in the capital gain savings scheme account which has not been utilised for any other purpose by the Assessee. The Assessee has complied with all the requirements of the Act to be able to benefit from the beneficial provisions of the Act 5.3. Based on the above, the intent and the action of the assessee were very clear that he intended to invest in a new property as provided by the Income Tax Act, 1961. It is the default on part of the Builder in not being able to complete the project in time and not handing over the possession of the property, which was beyond the control of the Assessee. 5.4. The Assessee also used legal remedy by filing a suit in the Hon'ble Bombay High Court against the builder. A copy of the same i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the object of the section is to promote housing and if assessee has invested the substantial part of the capital gain derived from transfer of the residential house in purchase or construction of another residential house within prescribed time but possession could not be received or construction could not be completed within the said prescribed time, the deduction u/s. 54 or 54F should not be denied. 7.2. In the case of CIT v. Mrs. Shakuntala Devi [2016] 389 ITR 366/75 taxmann.com 222 (Karn.) (Refer Annexure 6). It was held that the date of agreement to purchase should be taken as the date of purchase of the new property. As such if assessee has entered into the agreement to purchase and invested the capital gain, it is immaterial that part of the consideration is yet to be paid or registration has not been completed. Deduction u/s. 54 should be allowed. 7.3. In the case of Pr. CIT v. C. Gopalswamy [2016] 384 ITR 307/[2017] 81 taxmann.com 78 (Karn) (Placed at PB Page No. 168-172) it was held that where the assessee has entered into an agreement with a builder and invested the capital gain for purchase of a residential unit, he is entitled to deduction u/s. 54 irrespective of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assessee is very clear that he has invested almost the entire sale consideration of land in purchase of this residential flat It is another issue that the flat could not be completed and the matter is pending before the Hon'ble Bombay High Court seeking relief by the assessee by filing suit for direction to the Builder to complete the flat. It is impossible for the assessee to complete other formalities i.e. taking over possession for getting the flat registered in his name and this cannot be the reason for denying the claim of the assessee for deduction u/s 54 of the Act. In view of the above facts of the case, we are of the view that the assessee is entitled for deduction u/s 54F of the Act, because the assessee has already invested a sum of Rs. 18.60 lakhs in the residential property under construction within the time limit prescribed u/s. 54F of the Act. Accordingly, this issue of assessee's appeal is allowed . 7.9. Reliance be also placed on the order passed by The Income Tax Appellate (Delhi) Tribunal in the case of Bal Kishan Atal vs Assistant Commissioner of Income Tax (176 ITD 330(Delhi-Trib), (Placed at PB Page No. 200-208) where the tribunal held that The d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion are 'purchased' or 'constructed'. The condition precedent for claiming benefit u/s. 54F is that the capital gain should be parted by the assessee and invested either in purchasing a residential house or in constructing a residential house. Merely because the sale deed had not been executed or that construction is not complete, and it is not in a fit condition to be occupied does not disentitle the assessee to claim section 54F relief. 7.13 In the case of Satish Chandra Gupta v. Assessing Officer (1995) 54 ITD 508 (ITAT, Delhi Bench) (Placed at PB Page No. 215- 228) where the assessee had purchased a site and could not complete the construction of the house within the prescribed period of three years and the house was constructed and completed subsequently, the Delhi Bench granted relief on the ground that the delay had occurred on account of reasons beyond the control of the assessee. 7.14. In the case of Narasimha Raju Rudra Rao v. Asstt. CIT [2013] 35 taxmann.com 90/143 ITD 586 (Hyderabad-Tribunal) (Placed at PB Page No. 229-233) the ITAT held as under: Provision contained under section 54F being a beneficial provision has to be construed liberally In various ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scheme, out of the above amount assessee has paid further, amount of Rs. 1,66,60,560/- to the builder on various dates and at the end of the three years assessee has paid total amount of Rs. 7,52,20,744/- for the new property [60% of the purchase consideration]. 14. We observe that the balance amount in the bank account under capital gains account scheme was unutilized by the assessee due to the fact that the builder has stopped construction midway. Aggrieved with, the assessee has filed a suit in the Hon'ble High Court as of now it is fact on record that the assessee was not able to utilize the funds deposited in the capital gains account scheme due to the fact that the builder could not proceed with completion of the project. It is also fact that assessee has entered into an agreement with the builder with the indemnity clause in case builder fails to complete the project in time. It is also fact that assessee has filed the suit before Hon'ble High Court with the main ground for objections is about the capital gains liability. However, we observe that Assessing Officer interpreted the indemnify clause entered by the assessee in the purchase agreement that assessee has go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the Assessing Officer may proceed to tax the same the day assessee utilizes the funds for some other purposes, till such time assessee cannot be forced to declare the same as income immediately after the expiry of the limitation period. The question is how long the limitation period to be extended. From the record, it is not clear when the builder stopped the construction. In case, he has stopped the construction one year prior to the date of completion, then the assessee should be allowed to utilize the same from the date of the Hon'ble High Court order for a period of one year. Unless and until, the issue is resolved, the assessee cannot be compelled to treat the unutilized portion of the funds lying the bank account (Capital Gain Account scheme) as taxable. Therefore, in the given case we are inclined to decide the issue in favour of the assessee since the assessee is not in a positon to perform and utilize the funds kept in the bank account under capital gains account scheme. Accordingly, the appeal filed by the assessee is allowed for current Assessment Year. 17. In the result, appeal filed by the assessee is allowed. Order pronounced in the open court on 09th August, 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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