Assessee complied with section 54(2) deposit requirements but property purchase status needs verification for exemption eligibility

ITAT Mumbai held that assessee complied with section 54(2) requirements by depositing entire sale consideration in Capital Gains Scheme Account before due date and filing return within prescribed time. However, regarding the two-year purchase requirement, the tribunal found insufficient examination of whether the property purchased was ready-to-move-in or under-construction. The matter was remanded to AO for proper verification of property status and documentary evidence to determine section 54 exemption eligibility. Appeal allowed for statistical purposes.

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Issues Involved:
1. Taxation of capital gains.
2. Denial of exemption u/s 54.
3. Interpretation of the incentive section liberally for exemption u/s 54.

Summary:

1. Taxation of Capital Gains:
The primary issue pertains to the year in which the capital gains accrued to the assessee are taxable. The assessee argued that since the full consideration was received on 26.09.2013, the capital gain should be taxable in the assessment year 2014-15. However, the Revenue contended that the "transfer" u/s 2(47) of the Act took place on 24.04.2012 when the deed of conveyance was signed, and physical possession was handed over. The Tribunal concluded that the transfer of the original asset took place in the financial year relevant to the assessment year 2013-14, making the capital gains taxable in the assessment year 2013-14.

2. Denial of Exemption u/s 54:
The assessee claimed exemption u/s 54, arguing that the entire sale consideration was deposited in the Capital Gains Scheme Account on 26.09.2013, before filing the return of income u/s 139(1). The Revenue denied the exemption, stating the new residential house was purchased after two years from the sale of the original asset. The Tribunal found that the assessee's original return filed on 01.10.2013 was within the due date prescribed u/s 139(1) and the sale consideration was deposited in the Capital Gains Scheme Account before this due date. Therefore, the assessee complied with the provisions of section 54(2) of the Act.

3. Interpretation of Incentive Section Liberally for Exemption u/s 54:
The assessee argued that the new house property was an under-construction flat, and the occupation certificate was awaited, thus the extended period of three years for construction should apply. The Tribunal noted the need to determine whether the residential property was a ready-to-move-in flat or an under-construction flat and whether the extended period of three years is applicable. This aspect was not examined by the lower authorities. Therefore, the Tribunal restored the issue to the file of the jurisdictional AO for further examination and adjudication, directing the assessee to furnish necessary documents to support the claim.

Conclusion:
The appeal by the assessee was allowed for statistical purposes, with the matter remanded to the AO for further examination and adjudication regarding the nature of the residential property and the applicability of the extended period for exemption u/s 54.

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