LEKHA REDDY METTU,USA vs. ACIT., INTERNATIONAL TAXATION-1, HYDERABAD

The common grounds raised by the assessees in and 232/Hyd/2024 reads as under:

Facts of the case, in brief, are that the assessee is an individual and Non-Resident, has not filed return of income for the A.Y 2017-18. As per the immovable property transaction information disseminated by the I&CI wing for the F.Y 2016-17 relevant A.Y 2017-19, the Assessing Officer noted that the assessee along with 45 others have entered into DAGPA for Development and sale of immovable property all the land admeasuring acrs 4.505 in Survey No.14 of Guttala Begumpet Village, Serlingampally Mandal Rangareddy District(21806 Sq.Yds with approximate built up area of 2,75,00,000 sft) registered vide DAGPA document No.6418/2016 dated 31-05-2016, for a total sale consideration of Rs.43,61,20,000/- as against SRO value of Rs.62,86,20,000/-. As per the DAGPA the owners and developer shares are 47.25% and 52.75%. As the assessee is one amongst the 46 owners the share of the assessee is 1/46th of the share of the owners. The assessee’s share in chargeable sale consideration as per section 50C of the IT Act, 1961 for computation of Long Term Capital Gain is Rs.64,57,000/- and the assessee will get the benefit of deduction of indexed cost of acquisition and construction/improvement when the details become available.

During the FY 2016-17 relevant to AY 2017-18, income chargeable to tax in the hands of assessee accrued in the form of Long Term Capital Gains to the extent of Rs.64,57,000/- but the assessee did not file return of income and he did not offer this income to tax. Therefore, income of Rs.64,57,000/- has escaped assessment in the hands of assessee for AY 2017-18.

Hence, the Assessing Officer reopened the assessment with the prior administrative approval and a notice U/s 148 of the Income Tax act, 1961 was issued to the assessee. Notices u/s 142(1) of the Income Tax act, 1961 and Show cause notice was issued to the assessee in response to which the AR of the assessee appeared before the Assessing Officer and accepted the deemed sale consideration at Rs.50,00,000/- and claimed indexed cost of acquisition of Rs.5,28,000/- and submitted that the assessee is eligible for claiming exemption u/s 54F of Income Tax Act, 1961.

However, the explanation of assessee was not acceptable to the Assessing Officer on the ground that the assessee was yet to receive the Villa/residential house and has not acquired legal title on such residential house/villa as on the date of JDA. Further, the assessee has not got legal title/registered the residential house/villa in her name till date while the section 54F stipulates that the assessee shall purchase house within two years or construct new house within three years. So, it is a violation of the section 54F of the Income Tax Act, 1961. The assessee herself admitted that the construction of villa was not completed till date and occupancy certificate was also not received. The Assessing Officer rejected the explanation offered by the assessee and completed the assessment u/s 147 r.w.s. 144C(13) of the I.T. Act and initiated penalty proceedings u/s 270A of the I.T. Act, 1961.

The learned Counsel for the assessee drew the attention of the Bench to the direction of the DRP which are mentioned at page 5 of the DRP in para 2.2.3.1 to 2.3.4 which is reproduced below:

It was the contention of the learned AR that pursuant to the direction of the DRP, the Assessing Officer disallowed exemption u/s 54F of the Act and the reasonings are given in para No.9 at page 6 of the assessment order which to the following effect:

The contention of the learned AR is that as per JDA agreement entered between the assessee along with others on 31.05.2016, the assessee is eligible to get one villa of 250 sq. yards within 36 months of the JDA i.e. 31.05.2016. It was the contention of the assessee that because of the dispute between the partners of the developer, the construction has not been completed and the possession of the property has not been handed over to the assessee. For the above said purposes, the learned AR drew our attention to the order passed by the Hon'ble High Court dated 28.7.2022 which shows for the assessee that there was a dispute between the partners of the Developer and therefore, the construction could not have completed by the Developer within the stipulated period of 36 months.

The learned AR further submitted that construction has not been completed within the time granted by section 54F of the I.T. Act, for no fault of the assessee, therefore, the benefit of beneficial provision should be extended to the assessee.

Per contra, the learned DR submitted that the JDA was dated 31.05.2016 and as per this, the construction was to be completed within 30 months upto 1.12.2018. However, it is the case of the Revenue that the construction was only completed in Nov. 2023 and no registration has taken place in the name of the assessee. It was submitted that since the construction was not completed within a period of 3 years as contemplated u/s 54F of the I.T. Act, 1961, the benefit of section 54 cannot be granted to the assessee.

We have heard both the parties and perused the material available on record. The important dates which are relevant for adjudication of the appeal are: i) JDA was entered into by the assessee and others on 31.5.2016 ii) The plans were approved on 17.04.2017 iii) Construction was to be completed within 36 months i.e. by 31.05.2019. iv) Construction was completed on Nov. 2023 v) The litigation filed by the Partners of the Developers against each other as clear from the order was 21.10.2021.