MR. GULSHAN ARORA,NEW DELHI vs. ACIT, GURGAON

This appeal by the assessee is preferred against the order of the Commissioner of Income Tax [Appeals] – 1, Gurgaon dated 02.12.2016 pertaining to assessment year 2013-14.

The solitary grievance of the assessee is that the ld. CIT(A) erred in denying full exemption u/s 54 of the Income-tax Act, 1961 [hereinafter referred to as 'The Act'] in respect of capital gain derived by the assessee during the year under consideration.

Briefly stated, the facts of the case are that the assessee filed his return of income on 24.06.2013 declaring taxable income of Rs. 36.76 lakhs. Return was selected for scrutiny assessment through CASS and, accordingly, statutory notices were issued and served upon the assessee. During the course of scrutiny assessment proceedings, the Assessing Officer noticed that there is long term capital gain of Rs. 62.07 lakhs, which the assessee has claimed as exempt u/s 54 of the Act. The assessee was asked to furnish the details in respect of the claim of exemption u/s 54 of the Act.

The assessee explained the details by furnishing the following chart:

After perusing the details furnished by the assessee, the Assessing Officer observed that agreement for purchase has been agreed upon by the assessee with the builder on 24.09.2009 which is two years 10 months prior to the transfer of the original asset.

The assessee strongly contended that agreement with the builder may be treated as an agreement for construction and claim for deduction u/s 54 of the Act be allowed since the assessee has constructed property within three years from the date of transfer of original asset.

The Assessing Officer partly accepted the claim of the assessee.

The assessee carried the matter before the ld. CIT(A) but without any success.

While dismissing the appeal of the assessee, the ld. CIT(A) observed that since the assessee has filed his return of income on 24.06.2013, the amount utilised by him towards construction of house till that date only can be allowed as deduction u/s 54 of the Act. The ld. CIT(A) found that this amount has already been allowed by the Assessing Officer. Therefore, the assessment was confirmed.

Before us, the ld. counsel for the assessee vehemently stated that since more than 50% of the cost of the new asset was already invested by the assessee towards new asset since the date of agreement with the builder i.e. September 2009, the same is also eligible for claim of deduction u/s 54 of the Act.

Strong reliance was placed on the decision of the Hon'ble High Court of Delhi in the case of Bharti Mishra 567/2013. It is the say of the ld. counsel for the assessee that since during construction of the flat, the assessee has invested entire proceeds from sale of old asset, the assessee is very much eligible for claim of exemption u/s 54 of the Act.

Per contra, the ld. DR strongly supported the findings of the Assessing Officer.

We have given thoughtful consideration to the orders of the authorities below. The undisputed fact is that the flat was sold on 28.07.2012 whereas the assessee has started giving instalments to the builder since September 2009, which is prior to one year from the date of transfer of the asset. It is also not in dispute that the assessee filed his return of income on 24.06.2013. In our considered opinion, the assessee is eligible for deduction u/s 54 of the Act for the instalments paid prior to one year from the date of sale of asset which is 28.07.20120 and, accordingly, the assessee is entitled for benefit of instalments paid on and after 28.07.2011. The findings of the ld. CIT(A) are, accordingly, modified and the ground raised by the assessee is partly allowed.

In the result, the appeal of the assessee in is partly allowed.