2024 (7) TMI 781 - AT - Income Tax

Assessee wins LTCG exemption under section 54F despite delayed property registration and technical lapses

The ITAT Kolkata allowed the assessee's appeal regarding LTCG exemption under section 54F. The court held that exemption cannot be denied due to technical ... LTCG - exemption u/s 54F - exemption denied as assessee had not constructed residential property within two years of the sale of original asset (equity shares) Assessee has received the consideration in the form of asset and not in terms of money and further that the assessee should invest the money received from the sale of capital asset - HELD THAT:- This point is not tenable. As per the provisions of section 54F of the Act, the amount of consideration can be invested for purchase of house even the year prior to the date of sale of asset, hence it is not the same money but the amount equal to the net consideration received. Belated transfer of the house in the name of the assessee - The decision of case of ‘Mr. Muthu Daniel Rajan [2023 (2) TMI 302 - ITAT CHENNAI] is squarely applicable to the facts and issues in the present case wherein as relying upon the decision of Suraj Lamp & Industries Pvt. Ltd. v. State of Haryana & Another’ [2011 (10) TMI 8 - SUPREME COURT] has held that when it comes to the beneficial provisions of section 54F of the Act, what is required to be seen is whether the assessee has invested amount for purchase of property or not? And further that the claim of benefit u/s 54F of the Act cannot be denied on the ground of technical lapses like non-registration of agreement to sale, etc. That in case, the assessee proves with evidences that finally he had registered the property in his favour and further the investment was made within the stipulated period, then the exemption cannot be denied u/s 54F of the Act - Decided in favour of assessee. Addition u/s 56(2)(vii)(b) - land purchased in lieu of transfer of shares was shown less than market value/stamp duty value as determined by the stamp valuation authority - as market value was disputed by the assessee and therefore, the case was referred to Departmental Valuation Officer (‘DVO’), who estimated the market value of the property differently - HELD THAT:- As admittedly, the difference in the value given by the DVO and the value mentioned by the assessee in the transfer deed is less than 5%. The market value determined by the DVO is purely a work of estimation only. In this case, there is a minor difference of the estimation of market value of the property as declared by the assessee compared to the value estimated by the DVO. Undisputedly, the consideration received by the assessee has been invested for the purpose of construction of house amounting to Rs. 19050000/-, whereas, the assessee has claimed deduction u/s 54F of the Act of Rs. 1,65,52,344/- only. The assessee, otherwise, will be eligible of the aforesaid difference of the amount pointed out by the Assessing Officer towards deduction u/s 54F of the Act. In view of this, no additions are warranted on this ground also. Appeal of the assessee stands allowed. Issues Involved:1. Disallowance of exemption claimed under Section 54F of the Income Tax Act.2. Addition made under Section 56(2)(VII) of the Income Tax Act.Issue-Wise Detailed Analysis:1. Disallowance of Exemption Claimed Under Section 54F:The assessee transferred long-term investment in shares and received land in exchange. The assessee claimed exemption under Section 54F of the Income Tax Act for the construction of a residential house on the purchased land. The Assessing Officer disallowed the exemption on the grounds that the land was leasehold property requiring permission from Asansol Durgapur Development Authority (ADDA) for transfer, which was not obtained. Furthermore, the residential property was not constructed within the stipulated period.The CIT(A) confirmed the disallowance based on several grounds:- The consideration received was in the form of an asset, not money.- The agreement dated 03.08.2012 was not a legal document for proving investment in the residential house.- The construction was not completed within the stipulated period.- The property could not be transferred without ADDA's permission.Upon appeal, it was argued that the construction was completed within the stipulated period and the investment was made within the required timeframe. The Tribunal noted that the beneficial provisions of Section 54F should be liberally interpreted. The Tribunal referred to various case laws, including the judgment of the ITAT Chennai in Mr. Muthu Daniel Rajan vs. ACIT, which emphasized that the investment in a residential property should be considered even if there are technical lapses like non-registration of the agreement to sell. The Tribunal concluded that the assessee was entitled to the exemption under Section 54F, allowing the appeal in favor of the assessee.2. Addition Made Under Section 56(2)(VII):The Assessing Officer added Rs. 7,38,588 under Section 56(2)(vii)(b) of the Income Tax Act, as the market value of the land determined by the Departmental Valuation Officer (DVO) exceeded the declared value. The CIT(A) confirmed this addition.The assessee argued that the difference in value was less than 5% and referred to the third proviso to Section 50C, which allows for a 10% margin. The Tribunal acknowledged that the difference was minor and emphasized that the entire consideration received was invested in the construction of the house. Consequently, the Tribunal concluded that no additions were warranted under this ground as well.Conclusion:The Tribunal allowed the appeal in favor of the assessee, granting the exemption under Section 54F and negating the addition under Section 56(2)(VII). The judgment reiterated the importance of liberal interpretation of beneficial provisions and acknowledged minor discrepancies in valuation.