Appeal partially allowed for deduction u/s 54, denied for exemption u/s 54EC.

The ITAT partially allowed the appeal, granting deduction u/s 54 as the residential house property was transferred. However, the claim for exemption u/s 54EC was denied due to non-compliance with the investment timeframe, upholding the CIT's decision on this matter.

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Issues:
1. Jurisdiction of CIT u/s 263 of the ITA, 1961
2. Exemption u/s 54 vs. 54F of the ITA, 1961
3. Exemption u/s 54EC of the ITA, 1961

Jurisdiction of CIT u/s 263 of the ITA, 1961:
The appeal challenged the CIT's jurisdiction under section 263 of the Income-tax Act, 1961, contending that the order passed by the AO was not erroneous. The CIT directed the AO to disallow exemption u/s 54 and instead allowed exemption u/s 54F, citing that only development rights were transferred. However, the Development Agreement indicated the transfer of both land and a residential bungalow, contradicting the CIT's view. The AO had allowed exemption u/s 54 for the construction of a new residential flat based on the agreement. The ITAT held that the spirit of the agreement showed the transfer of the house property along with the land to the developer, justifying the assessee's claim for exemption u/s 54.

Exemption u/s 54 vs. 54F of the ITA, 1961:
The CIT contended that only exemption u/s 54F could be claimed as the assessee transferred only development rights, not the entire house property. However, the ITAT analyzed the Development Agreement and found that the house property along with the land was indeed transferred, contrary to the CIT's assertion. The possession given by the assessee included the entire real estate, supporting the claim for exemption u/s 54. The ITAT emphasized that the CIT's decision was unfounded as the agreement clearly indicated the transfer of the house property, qualifying for exemption u/s 54.

Exemption u/s 54EC of the ITA, 1961:
Regarding the claim of exemption u/s 54EC, the AO allowed the claim without considering the investment in NHAI bonds within the stipulated period. The CIT found the AO's decision erroneous, stating that the delay in investment was not justified. The assessee argued that the delay was unintentional due to circumstances, citing judicial precedents to support condoning the delay. However, the ITAT upheld the CIT's decision, noting that the reasons for delay were insufficient and did not qualify as extreme circumstances. The failure to invest within the prescribed time rendered the claim for exemption u/s 54EC invalid, as the provisions were not complied with.

In conclusion, the ITAT partially allowed the assessee's appeal, granting deduction u/s 54 due to the transfer of the residential house property. However, the claim for exemption u/s 54EC was denied as the investment in NHAI bonds was not made within the specified timeframe, upholding the CIT's decision on this issue.

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