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Facts
The assessee sold two residential properties and claimed exemption under Section 54 of the Income Tax Act for investing in an under-construction property, L&T Crescent Bay. The Assessing Officer (AO) disallowed the exemption, treating the allotment date as the purchase date and stating it was outside the permissible window for claiming deduction. The CIT(A) upheld the AO's order.
Held
The Tribunal held that the booking of a flat in an under-construction apartment should be considered a case of construction, not purchase. The commencement date of construction is not relevant, provided the construction is completed within three years from the date of transfer of the original property, fulfilling the requirements of Section 54 of the Act.
Key Issues
Whether the investment in an under-construction property qualifies for exemption under Section 54, and if the date of allotment or commencement of construction is the determining factor for the period of investment.
Sections Cited
54, 234B, 234C
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Income Tax Appellate Tribunal, “I” BENCH, MUMBAI
Before: SHRI AMIT SHUKLA & SHRI AMARJIT SINGH
आदेश / O R D E R Per Amarjit Singh (AM): This appeal filed by the assessee is directed against the order passed by the ld. CIT(A)-57 for A.Y. 2016-17. The assessee has raised the following grounds before us: “Ground 1. Disallowance of exemption under section 54 of the Act:
1. In the facts and circumstances of the case and in law, the learned Commissioner of Income Tax, CIT(A)-57, Mumbai (hereinafter referred to as "CIT(A)-57") erred in rejecting the exemption claimed by the Appellant under section 54 of the Act by stating that L&T Crescent Bay property was purchased from the builder for which the payment made on October 18, 2012 would be treated as transfer date under the provision of Section 54 of the Act and the same should be construed as purchase of property instead of construction P a g e | Pranav Bhawnath Jha Vs. Int. Tax Ward 3(1)(1) 2. The learned CIT(A)-57 also erred in appreciating the fact that dispute was not regarding whether the date of allotment or date of registration of purchase should be taken as the date of purchase, but it was regarding the investment was made for under construction property and not for purchase of a fully completed residential house property.
3. The learned CIT(A)-57 erred in holding that the investment in new residential property was not made within the period of one year before the date of sale of two flats instead of applying the period of 3 years for investment into construction of property.
The learned CIT(A)-57 erred in affirming the AO's view that the date of purchase has been taken as that of allotment letter and it is beyond the period of one year from sale of old property. Therefore, whether the residential property was purchased or constructed remained a pertinent issue which was not resolved by the learned CIT(A)-57.
The learned CIT(A)-57 has erred in limiting the provisions of Section 54 of the Act by concluding that the sale proceeds or gain had to be actually invested in the property and that any prior investment before the sale of the property shall not be considered for the purpose of exemption.
6. The learned CIT(A)-57 has erred in rejecting the submissions and various case laws relied upon which highlighted that the date of commencement of construction was not relevant for claiming deduction under section 54 of the Act Ground 2. Erred in in upholding the demand payable amounting to INR 14,77,390 in the hands of the Appellant. Ground 3. Erred in levying interest under sections 234B and 234C of the Act.”
Fact in brief is that return of income declaring total income for assessment year 2016-17 at Rs.7,73,800/- was filed on 02.08.2016. The return was subject to scrutiny assessment and notice u/s 143(2) of the Act was issued on 03.07.2017. During the course of assessment the assessing officer noticed that assessee had sold a residential house and claimed exemption from capital gain tax u/s 54 of the Act. The assessing officer further noticed that assessee has made an agreement for purchase of new house in F.Y. 2012-13 and paid earnest money. The assessing officer was of the view that for the claim of deduction u/s 54 of the Act, the assessee has to purchase residential house within a period of one year before or two years after the transfer took place. The P a g e | Pranav Bhawnath Jha Vs. Int. Tax Ward 3(1)(1) assessing officer further stated that assesse has made agreement for purchase of new house on 18.10.2012 and payment of Rs.11 lac was made subsequent to the agreement, therefore, he was of the view that 18.12.2012 was the transfer date under the provisions of I.T. Act. Therefore, the assessing officer held that assessee was not entitled to get the benefit of exemption from capital gain tax u/s 54 of the I.T. Act because he has not purchased a residential house within a period of one year before or two years after the date of transfer of the long term capital asset. Accordingly, the assessing officer denied the exemption u/s 54 of the Act amounting to Rs.53,49,175/-.
The assessee filed the appeal before the ld. CIT(A). The ld. CIT(A) has dismissed the appeal of the assessee. 4. During the course of appellate proceedings before us the ld. Counsel vehemently contended construction of new house property of L & T Crescent Bay was completed only on 15.03.2018. He also submitted that investment made by the assessee should have been considered as investment in construction of property which has to be completed within stipulated period of three years. He filed paper book comprising copies of document and details submitted before the lower authorities. He also referred the following judicial pronouncements: I. Mustansir I Tehsildar v. ITO [2017] 88 taxmann.com 275 (Mumbai - Trib.) II. CIT v. J.R. Subramanya Bhat [1987] 165 ITR 571 (Kar.) III. CIT v. Bharti Mishra [2014] 41 taxmann.com 50 (Delhi) IV. CIT v. Smt. Bharati C. Kothari (2000) 244 ITR 352 V. CIT v. H.K. Kapoor [1998] 234 ITR 753 (AII.) VI. Asstt.CIT v. Subhash Sevaram Bhavnani [2012] 23 taxmann.com 94 (Ahm. Tri.) The ld. Counsel also contended that the date of construction of the property was relevant not the date of commencement of the property in the case of the assessee.
P a g e | Pranav Bhawnath Jha Vs. Int. Tax Ward 3(1)(1) 5. On the other hand, the ld. D.R contended that newly acquired property was allotted to the assessee on 18.12.2012 and the said date was rightly treated by the AO as transfer date under the provision of Sec. 54 of the Act.
Heard both the sides and perused the material on record. During the year under consideration the assessee has sold two residential house properties on 01.01.2016 and March, 2016 respectively and exemption was claimed from capital gains u/s 54 of the Income Tax Act, 1961 by investing in under construction residential house property namely L & T Crescent Bay. The payments for the construction of L & T Crecent Bay House Property were made in the instalment since October 2012 as per the schedule mentioned in the agreement for sale. The construction of L & T Crescent Bay House Property was completed on 15.03.2018. The assessing officer was of the view that the allotment of house property was made on 18.10.2012 and same was considered as date of purchase of new house property, therefore, assessing officer has disallowed the claim of exemption of capital gain from sale of house property u/s 54 of the Act amounting to Rs.53,49,175/-. The ld. Counsel has referred the CBDT Circular No. 672 dated 16.12.1993 in which it was clarified that in case of allotment of flats or house by cooperative societies or other institution whose scheme of allotment and consideration are similar to those of DDA then similar view should be taken as was done in the Board Circular No. 471 dated 15.10.1986, such cases may also be treated as cases of construction for the purpose of Sec. 54 and 54F of the Income Tax Act. We have perused the decision in the case of Mustanshir I. Tehsildar Vs. ITO (2017) 88 taxmann.com 274 (Mumbai – Trib) wherein the coordinate bench of ITAT, Mumbai held that acquisition of new flat in an apartment under construction is a case of construction and not purchase of property for claiming relief u/s 54 of the Act. In this case it is also held that construction could