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Income Tax Appellate Tribunal, MUMBAI BENCH “SMC”, MUMBAI
Before: SHRI G.S. PANNU
The captioned appeal by the assessee is directed against the order of CIT(A)-34, Mumbai dated 01.02.2016, pertaining to the Assessment Year 2011-12, which in turn has arisen from the order passed by the Assessing Officer, Mumbai dated 07.03.2014 under section 143(3) r.w.s 147 of the Income Tax Act, 1961 (in short ‘the Act’).
In this appeal, the short point involved relates to denial of exemption claimed by assessee u/s 54 of the Act. The relevant facts are that assessee sold a property at Indira Nagar on 17.3.2011 for a consideration of Rs.17,00,000/- on which Long Term Capital Gain was determined at Rs.12,35,463/-. The said Capital Gain was claimed exempt u/s 54 of the Act on the ground that assessee acquired another property being Flat no. 405, A-Wing, Gaurav Woods, Phase-II, Mira Road for a consideration which was more than the aforesaid amount of Capital Gain. The agreement for purchase of the new property was registered on 8.4.2013 for a total cost of Rs.45,78,000/-. The income- tax authorities have denied the claim of exemption u/s 54 of the Act on the ground that the new property has not been acquired by the assessee within a period of 2 years from the date on which the original property was sold as the purchase agreement was registered on 8.4.2013.
The stand of the assessee is that she had purchased the new property from the builder, M/s. Ravi Development and though the purchase agreement was executed on 8.4.2013, but she was allotted the flat vide allotment letter dated 1.3.2011 and that substantial consideration was paid before a period of two years from the date of transfer of old property. In this context, I find that the CIT(A) has noted in para 5 of his order that assessee had made a total payment of Rs.24,03,450/- before 16.3.2013 out of the total payment required to be made for the new property of Rs.45,78,000/-. The stand of assessee is that it should be considered that the property was acquired on the date of allotment letter dated 1.3.2011 and that, in any case, before the end of the period of two years substantial payment has been made and that the purchase deed was required to be registered by 16.3.2013 whereas it has been registered on 8.4.2013, leading to a small delay of 22 days, which was beyond the control of assessee. It has also been canvassed by the assessee that the builder, M/s. Ravi Development was not available for execution of sale agreement on time due to income- tax survey in their case and thus, there was a delay in execution of purchase agreement. It is also the stand of assessee that in sum and substance, the conditions prescribed in Sec. 54 of the Act have been complied with and that the expression “purchase” used in Sec. 54 should be interpreted pragmatically, as held by the Hon'ble Delhi High Court in the case of Kuldeep Singh in of 2014 dated 12.8.2014. It was also canvassed that the Hon'ble Madhya Pradesh High Court in the case of CIT vs. Ajitsingh Khajanchi, 297 ITR 95 (MP) observed that Sec. 54 of the Act speaks of purchase and that registration was not imperative. At the time of hearing, the learned representative for the assessee also relied upon the judgment of Hon'ble Calcutta High Court in the case of CIT vs. Smt. Bharati C. Kothari, 244 ITR 352 (Cal.) to point out that when substantial investment has been made in the new property, it should be deemed that substantial steps have been taken and it would satisfy the requirements of Sec. 54 of the Act.
On the other hand, the ld. DR appearing for the Revenue reiterated the stand of lower authorities by pointing out that the total consideration paid by assessee before 16.3.2013 cannot be construed to be substantial inasmuch as only a sum of Rs.24,03,450/- was paid as against total purchase cost of Rs.45,78,000/-. Secondly, it is pointed out that assessee did not get the possession of property before 16.3.2013 and neither the purchase agreement was executed. On the basis of aforesaid, denial of exemption u/s 54 of the Act has been sought to be defended.
I have carefully considered the rival submissions. Sec. 54 of the Act provides for exemption in respect of Long Term Capital Gain if assessee has purchased a new residential house one year before or two years after the date on which the old property was sold. In the present case, assessee earned Long Term Capital Gain on transfer of property on 17.3.2011 and in terms of Sec. 54 of the Act, she was required to acquire new residential house on or before 16.3.2013. The assessee claimed acquisition of new residential property at Mira Road from builder, M/s. Ravi Development. The said claim has been denied because the relevant purchase deed has been executed on 8.4.2013. Secondly, it is pointed out that the plea of assessee of having paid substantial consideration before 16.3.2013 is also not met. In my considered opinion, it is not in dispute that before the end of two years assessee has made payment of Rs.24,03,450/- starting from 1.3.2011, as per the tabulation reproduced by CIT(A) in para 4 of his order. Ostensibly, the consideration paid till 16.3.2013, though not full, but is in excess of the Long Term Capital Gain of Rs.12,35,463/-, which was required to be invested in the new property. In fact, the assessee has also canvassed that the delay of 22 days in execution of purchase deed was beyond her control as at the relevant point of time, the builder was not available. In this context, the Mumbai Bench of Tribunal in the case of Rajeev B. Shah vs. ITO in dated 8.7.2016 noted that inability of assessee to get the flat registered in his name or inability to get possession of flat under construction due to fault of builder would not justify denial of deduction u/s 54 of the Act as it is not in the hands of assessee to obtain registration or get construction of flat completed in time. The relevant discussion by our coordinate Bench in this regard is as under :-
“We find that so far as the facts in question are not disputed, the only issue is that when the assessee is not able to get the title of the flat registered in his name or unable to get the possession of the flat, which is under construction, due to fault of the Builder, the assessee cannot be denied deduction u/s 54F of the Act. It is a fact that the assessee has invested this amount of Rs.18,60,000/-in purchase of residential house within the stipulated period prescribed u/s 54F of the Act. But, it is not in the assessee’s hand to get the flat completed or to get the flat registered in his name, because it was incomplete. The intention of 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.”
In the present case too, which is in the context of Sec. 54 of the Act, the aforesaid reasoning taken by Tribunal in the case of Rajeev B. Shah (supra) squarely applies. In any case, the judgment of Hon'ble Delhi High Court in the case of Kuldeep Singh (supra), wherein a reference has been made to the judgment of Hon'ble Supreme Court in the case of CIT vs. T.N. Aravinda Reddy, 120 ITR 46 (SC), has explained that the expression “purchase” used in Sec. 54 of the Act has to be understood pragmatically and in a practical manner. In the present case, the facts are that (i) assessee acquired a specific flat inasmuch as a specific flat was allotted on 1.3.2011; (ii) payments to builder before a period of 2 years were made more than the amount of Capital Gain that was required to be invested; and (iii) that the purchase deed has been executed on 8.4.2013 instead of stipulated date of 16.3.2013 leading to a small delay of 22 days, which is beyond the control of assessee. Considering all these aspects, in my view, it can be said that substantial investments have been made in the new property and that steps undertaken by assessee before the stipulated date, i.e., 16.3.2013 were substantial so as to satisfy the requirement of Sec. 54 of the Act. Therefore, I set-aside the order of CIT(A) and direct the Assessing Officer to allow the exemption claimed by assessee u/s 54 of the Act of Rs.18,67,900/-.
In the result, appeal of assessee is allowed, as above.
Order pronounced in the open court on 13th January, 2017.