2012 (12) TMI 239 - AT - Income Tax

Tribunal affirms AO's decision on exemption claim under Income Tax Act

The Tribunal upheld the Assessing Officer's decision to reopen the assessment under Section 147 of the Income Tax Act to verify the exemption claim under ... Long term capital gain - sale of share – Claim exemption u/s 54F in respect of LTCG – AO argued that assessee had not invested the capital gains in the construction of a residential house within the time frame stipulated u/s 54F - AO had reopened the assessment u/s 147 and issue notice u/s 148 – AO brought LTCG under tax. Re-opening of assessment u/s 147 – Held that:- AO was within his realm to reopen the assessment by issuance of a Notice u/s 148 of the Act to verify the claim of the assessee as to whether the assessee is entitled to claim exemption. Statement given by assessee that the original return filed on 27.7.2008 (sic) 27.7.2007 for the assessment year 2007-08 may be treated as return filed in response to your notice u/s 148. This assertion of the assessee makes it implicit that the assessee had not objected to whatsoever the reopening of the assessment during the reassessment proceedings. In favour of revenue Exemption u/s 54F – Long term capital gain - Held that:- As no residential house worth the name was constructed within the three years from the sale of the original asset as contemplated u/s 54F. Assessee was expected to construct a residential house not later than 18.1.2010 whereas when the AO made a spot inspection along with his Inspector as late as on 19.10.2010 and found in the presence of the assessee’s representative that the construction was just started and the very fact has been acknowledged by the assessee herself. She had accordingly filed a revised return for the AY 2010-11 admitting the said amount as her income for the said assessment year. Therefore rejecting the assessee’s claim for exemption u/s 54F. In favour of revenue Issues Involved:1. Re-opening of the assessment under Section 147 of the Income Tax Act.2. Disallowance of claim for exemption under Section 54F of the Income Tax Act.Detailed Analysis:1. Re-opening of the Assessment under Section 147 of the Act:The assessee's return of income for the assessment year 2007-08 was initially processed under Section 143(1). During the assessment proceedings for the subsequent year, the Assessing Officer (AO) noticed that the assessee had claimed an exemption under Section 54F for Long Term Capital Gains (LTCG) on the sale of shares but had not invested the capital gains in the construction of a residential house within the stipulated time frame. Consequently, the AO reopened the assessment under Section 147 by issuing a notice under Section 148 after duly recording the reasons. The AO's action in reopening the assessment was not contested by the assessee.The Tribunal held that the AO was justified in reopening the assessment to verify the claim of exemption under Section 54F. The assessee did not object to the reopening or the notice under Section 148. The AO had sufficient grounds to reopen the assessment as the initial return was processed under Section 143(1) without detailed scrutiny, and it was later found that the capital gains were not utilized as required under Section 54F.2. Disallowance of Claim for Exemption under Section 54F of the Act:The assessee claimed an exemption under Section 54F for LTCG on the sale of shares, stating that the amount was invested in the construction of a residential house. The AO, during the reassessment proceedings, found that no house was constructed within the stipulated three-year period. The AO conducted a site inspection and found that the construction had just started and was in an initial stage, which the assessee acknowledged by filing a revised return for the assessment year 2010-11.The Tribunal noted that the assessee purchased a site and claimed to have started construction. However, the AO's inspection revealed that construction had not progressed significantly within the three-year period required under Section 54F. The Tribunal also considered additional documents submitted by the assessee, including certificates from local authorities and a developer's letter, but found them insufficient to prove substantial completion of the house within the required timeframe.The Tribunal emphasized that the exemption under Section 54F is granted only if the construction of the residential house is completed within three years from the date of sale of the original asset. In this case, the construction was not completed within the stipulated period, and the assessee herself acknowledged the delay in completion. Therefore, the Tribunal upheld the AO's decision to disallow the exemption and bring the LTCG to tax.Conclusion:The Tribunal dismissed the assessee's appeal, upholding the AO's actions in both reopening the assessment under Section 147 and disallowing the exemption claim under Section 54F. The Tribunal found that the AO had sufficient grounds to reopen the assessment and that the assessee failed to complete the construction of the residential house within the required timeframe, thereby invalidating the claim for exemption.