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Facts
The assessee entered into a joint development agreement with a developer. The AO computed long-term capital gain on this transfer. The CIT(A) confirmed the AO's order and denied the assessee's claim for exemption under Section 54F.
Held
The Tribunal held that the assessee's claim for exemption under Section 54F was not a fresh claim in reassessment proceedings and that evidence of ownership of the new residential units was lacking. However, relying on previous Tribunal and High Court decisions, the issue was set aside for fresh adjudication by the AO.
Key Issues
Whether the assessee is entitled to exemption under Section 54F for flats received under a joint development agreement, and whether such a claim can be made in reassessment proceedings.
Sections Cited
54F, 147, 148, 139, 2(47), 54, 13(2)
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Income Tax Appellate Tribunal, ‘A’ BENCH, BANGALORE
Before: SHRI WASEEM AHMED & SHRI KESHAV DUBEY
PER WASEEM AHMED, ACCOUNTANT MEMBER:
This is an appeal filed by the assessee against the order passed by the CIT(A) - 15, Bangalore vide order dated 25/03/2024 in DIN No. ITBA/APL/M/250/2024-25/1074949571(1) for the assessment year 2013-14.
The only issue raised by the assessee is that the learned CIT(A) did not extend the benefit of exemption under section 54F of the Act on the transfer of land under JDA.
The necessary facts are that the assessee, along with other co- owners, entered into a joint development agreement with M/s Ecsatsy Projects Pvt. Ltd. on 8.2.2013. According to the AO, such agreement amounts to the transfer of property within the meaning of the provisions of section 2(47) of the Act. Hence, the AO computed the long-term capital gain of ₹60,11,919 and added it to the total income of the assessee.
On appeal, the learned CIT(A) confirmed the order of the AO and also denied the exemption claimed by the assessee under section 54F of the Act. The relevant finding of the learned CIT(A) for denying the claim under section 54F of the Act stands as under:
“The appellant makes a claim of deduction under section 54F in the lieu of the flats supposedly received as a result of the JDA. The appellant's belated claim for Section 54F deduction raised for the first time during appellate proceedings is not allowable because of the following reasons; (A) First and foremost, such a claim in the reassessment proceedings is not maintainable in view of a plethora of judgements. Most importantly, as per CIT v. Sun Engineering Works (P) Ltd.[1992] 198 ITR 297 (SC), the honourable Supreme Court of India has held that reassessment under Section 148 is strictly limited to income escaping assessment, not permitting taxpayers to introduce new deductions or claims unrelated to the original assessment. or claims unrelated to the original assessments. (a) The appellant failed to claim Section 54F in their original return (filed under Section 139) or during reassessment proceedings. Raising it now violates the principle that reassessment is not a "second chance" to rectify omissions.
(b) The said judgement emphasized that issues settled in the original assessment (e.g., eligibility for deductions) cannot be re-litigated during appeals. The appellant's failure to disclose the JDA transaction or claim Section 54F at the appropriate stage renders the claim invalid.
(B) Secondly no evidence has been submitted with respect to the purported flats being received and retained by the appellant. (a) No documentary evidence like possession certificates etc. proving the appellant received flats in lieu of land transferred to the developer. valuation reports or stamp duty records have been submitted to establish the net value of the flats, which is critical for computing Section 54F deductions. (c) Section 54F requires the taxpayer to own only one residential property (other than the new asset) and utilize the sale proceeds to purchase! construct a residential house. The appellant's failure to prove ownership of the JDA flats or compliance with these conditions negates the claim on this count the appellant has relied on various case laws including that of Anand Basappa & Smt K G Rukminiamma.But these precedents favoring Section 54F are not applicable to the instant case due to the appellant's failure to substantiate the JDA transaction and claim it in the original return of income.”
Being aggrieved by the order of the learned CIT(A), the assessee is in appeal before us.
The learned AR before us did not agitate the issue with respect to the transfer of property by virtue of the joint development agreement with the party namely, M/s Ecsatsy Projects Pvt. Ltd. stated above. However, the learned AR made a limited prayer for allowing the deduction under section 54F of the Act. In this connection, the learned AR relied on the order of this Tribunal in the case of Shri C. Jagannath HUF vs. ITO in 1232, and 1234/Bang/2016 vide order dated 20 January 2017. The learned AR prayed that a similar direction be given by the ITAT for the case on hand as cited above in paragraph Nos. 11 and 12 of the order i.e. Shri C. Jagannath HUF vs. ITO in 1232, and 1234/Bang/2016.
On the other hand, the learned DR submitted that the proceedings were initiated under section 147 of the Act. This is for the benefit of the Revenue and not for the assessee. Accordingly, the assessee cannot make a fresh claim which is prejudicial to the Revenue in the proceedings initiated under section 147 of the Act.
We have heard the rival contentions of both the parties and perused the materials available on record. At the outset, we note that the proceedings in the case cited by the learned AR were also initiated under section 147 of the Act. Similarly, the identical issue was raised therein, which has been decided in the manner extracted below: 11. We have considered the rival submissions as well as relevant material on record. There is no dispute that the assessee was to receive the sale consideration in the shape of share in the JDA project. The assessees were to receive the constructed residential houses. Thus for the purpose of Section 54F/54 of the Income Tax Act, the assessee is entitled for the benefit of the investment in the residential house. The question arises whether more than one house or residential unit can be taken into consideration for the benefit of 54/54F of the Act. At the outset we note that the Hon’ble jurisdictional High Court in case of CIT Vs. Smt. K. G. Rukminiamma (supra) has considered an identical issue and held in paras 10 to 13 as under: 10. The context in which the expression 'a residential house' is used in section 54 makes it clear that, it was not the intention of the legislation to convey the meaning that it refers to a single residential house. If that was the intention, they would have used the word "one". As in the earlier part, the words used are buildings or lands which are plural in number and that is referred to as "a residential house", the original asset. An asset newly acquired after the sale of the original asset also can be buildings or lands appurtenant thereto, which also should be "a residential house". Therefore, the letter 'a' in the context it is used should not be construed as meaning "singular". But, being an indefinite article, the said expression should be read in consonance with the other words 'buildings' and 'lands' and, therefore, the singular 'a residential house' also permits use of plural by virtue of section 13(2) of the General Clauses Act. This is the view which is taken by this court in the aforesaid Anand Basappa's case, in I.T.A.No. 113/2004, disposed of on 20-9-2008. 11. We, therefore, do not see any merit in the submission of the learned counsel for the revenue.
12. In the instant case, the facts are not in dispute. On a site measuring 30' × 110', the assessee had a residential premises. Under a joint development agreement, she gave that property to a builder for putting up flats. Under the agreement eight flats are to be put up in that property and four flats representing 48 per cent is the share of the assessee and the remaining 52 per cent representing another four flats is the share of the builder. So, the consideration for selling 52 per cent of the site is four flats representing 48 per cent. All the four flats are situate in a residential building. These four residential flats constitute "a residential house" for the purpose of section 54. Profit on sale of property is used for residence. The four residential flats cannot be construed as four residential houses for the purpose of section 54. It has to be construed only as "a residential house" and the assessee is entitled to the benefit accordingly.
In that view of the matter, the Tribunal as well as the appellate authority were justified in holding that there is no liability to pay capital gain tax as the case squarely falls under section 54 of the Income-tax Act. Hence, we do not see any substantial question of law arising for consideration in this appeal. Accordingly, the appeal is dismissed.
Accordingly, in principle this issue is covered by the decision of Hon’ble jurisdictional High Court. However, as regards the computation of exemption u/s. 54, since we already remitted the issue of valuation of the capital gain and full value consideration to the record of the AO therefore this issue is also set aside to the record of the AO for adjudication in the light of the decision of the Hon’ble jurisdictional High Court as well as the other decisions relied upon by the assessees.
8.1 The facts of the case on hand are identical to the facts of the case cited above. Therefore, respectfully following the same, we set aside the issue to the file of the AO for fresh adjudication in the light of the above discussion and as per the provisions of law.
8.2 To avoid any ambiguity, we make it clear that the issue whether capital gain is subject to addition/taxation in the year under consideration on account of transfer of land under joint development agreement has not been argued by the learned counsel for the assessee. Accordingly, the corresponding grounds raised by the assessee in the . appeal do not require any interference. As such, we dismiss the same as infructuous. Hence, the ground of appeal of the assessee is partly allowed for statistical purposes.
In the result, the appeal filed by the assessee is partly allowed for statistical purposes.