2022 (2) TMI 486 - AT - Income Tax

Appellate tribunal affirms assessee's win on Section 54 deduction requirements

ACIT-22 (3), Mumbai Versus Vinay Girish Bajpai, Mumbai

The appellate tribunal upheld the CIT(A)'s decision, ruling in favor of the assessee regarding the interpretation and application of Section 54 of the ... Deduction u/s 54 - assessee not able to obtain gainful possession of the property for availing the deduction of section 54 - delay in the project by the builder - assessee has made the payment to the builder within the stipulated time but there was some issue of obtaining the completion certificate by the builder, hence, there was some delay in handling over the possession - HELD THAT:- We find that assessee has complied with the condition mention under section 54 of the IT Act to claim the exemption. As pointed out by the assessee the handing over of the possession was delayed due to fault on the part of the builder and assessee has complied with the necessary condition of payment as required. There is a due agreement and part amount was paid. Accordingly, in such situation, the decision of Hon’ble Supreme court in the case of Sanjeev Lal [2014 (7) TMI 99 - SUPREME COURT] provides that part payment will also suffice the ingredients of transfer for the purpose of section 54 - Decided against revenue. Issues Involved:1. Interpretation of Section 54 of the Income Tax Act, 1961.2. Legislative intent behind the time period for investment under Section 54.3. Compliance with the statutory requirements for availing deduction under Section 54.4. Consideration of possession and completion of the house property within the prescribed time limits.5. Validity of the disallowance of the deduction claimed under Section 54.Detailed Analysis:1. Interpretation of Section 54 of the Income Tax Act, 1961:The primary issue revolves around the interpretation of Section 54 of the Income Tax Act, 1961, which deals with the exemption of capital gains arising from the sale of a residential property if the gains are reinvested in another residential property. The Commissioner of Income Tax (Appeals) [CIT(A)] allowed the assessee's claim for deduction under Section 54, which the revenue contested, arguing that the CIT(A) misinterpreted the provisions of Section 54.2. Legislative Intent Behind the Time Period for Investment:The revenue contended that the CIT(A) erred in interpreting the legislative intent, which implies that the assessee should have purchased or constructed the new property within three years from the year in which the capital gains arose. The Assessing Officer (AO) observed that the assessee did not complete the construction and obtain possession of the new property within the stipulated three-year period, thus disallowing the deduction.3. Compliance with the Statutory Requirements for Availing Deduction:The AO noted that the assessee sold the original property on 19.12.2014 and claimed a deduction of Rs. 3,42,58,350 under Section 54. However, the new investment was made over a period extending beyond the date of transfer. The AO disallowed the deduction, citing non-compliance with the requirement of completing the house property within three years from the date of transfer.4. Consideration of Possession and Completion of the House Property:The assessee argued that part of the purchase consideration was paid before the date of agreement and that the property was under construction, with completion delayed due to the builder's failure to obtain an occupation certificate. The CIT(A) accepted the assessee's argument, citing case laws that support a liberal interpretation of Section 54, where the delay in possession due to factors beyond the assessee's control should not result in denial of exemption.5. Validity of the Disallowance of the Deduction Claimed:The CIT(A) relied on various judicial pronouncements, including decisions from the Hon’ble Bombay High Court, which held that substantial compliance with the investment requirements within the stipulated period suffices for claiming exemption under Section 54. The CIT(A) concluded that the assessee had made the necessary payments and entered into an agreement within the prescribed period, thus fulfilling the conditions for availing the deduction.Conclusion:The appellate tribunal upheld the CIT(A)'s order, stating that the assessee had complied with the conditions under Section 54 of the IT Act. The tribunal noted that the delay in obtaining possession was due to the builder's fault and that the assessee had made substantial investments within the required period. The tribunal referenced the Hon’ble Supreme Court's decision in Sanjeev Lal vs CIT, which supports the view that part payment and entering into an agreement within the stipulated period suffice for claiming exemption under Section 54.Final Judgment:The appeal by the revenue was dismissed, and the order of the CIT(A) was upheld, allowing the assessee's claim for deduction under Section 54 of the Income Tax Act, 1961. The tribunal found no infirmity in the CIT(A)'s decision and pronounced the judgment in favor of the assessee on 01.02.2022.