2025 (1) TMI 29 - AT - Income Tax

Assessee gets section 54F deduction despite AO's manipulation allegations and delayed sale deed execution

ITAT Pune allowed the assessee's claim for deduction under section 54F despite AO's allegations of manipulation. The tribunal held that payment of Rs. ... Deduction u/s 54F - as per AO assessee has diverted the money to the family concern without purchase of any residential house and the entire transaction for claiming exemption u/s 54F is manipulated and doctored - actual sale deed has not been entered into within the specified period and such an MoU has been entered into with a concern where the assessee and the family members are shareholders. HELD THAT:- We find as in the case of CIT vs. Smt. B.S. Shantakumari [2015 (8) TMI 274 - KARNATAKA HIGH COURT] has held that once it is established by the assessee that she had invested entire net consideration in construction of residential house within stipulated period, it would meet requirement of section 54F and she would be entitled to get benefit of section 54F even if the construction was not completed within a period of three years. We find in the case of Lalitkumar Kesarimal Jain [2019 (9) TMI 1138 - ITAT PUNE] has held that mere fact that assessee was one of associated parties in said concern which was developing housing project, could not be a ground to deny benefit of deduction u/s 54F. Hon'ble Supreme Court in the case of Fibre Boards (P) Ltd. [2015 (8) TMI 482 - SUPREME COURT] has held that advances paid for purpose of purchase and / or acquisition of plant / machinery, and land / building amount to utilization by assessee of capital gains under section 54G Thus, considering the fact that the assessee has admittedly entered into MoU and paid an amount of Rs. 10.60 crores to M/s. Kumar Housing Corporation, which finds mention in the sale deed executed subsequently, therefore, merely because the assessee and his family members are the shareholders in KUD and that the sale deed has been executed after a period of two years, the assessee in our opinion cannot be denied the benefit of deduction u/s 54F of the Act - Decided in favour of assessee. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions addressed in this judgment include:Whether the assessee is entitled to claim exemption under Section 54F of the Income Tax Act, 1961, despite the non-registration of the Memorandum of Understanding (MoU) and the subsequent registration of the sale deed beyond the stipulated period.Whether the transaction involving the purchase of a residential property through an MoU with a related concern constitutes a valid transaction for claiming tax exemption under Section 54F.Whether the investment made in a disputed property can qualify for exemption under Section 54F.Whether the principles laid down in various precedents regarding the timing and nature of property acquisition apply to the facts of this case.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Entitlement to Exemption under Section 54FRelevant Legal Framework and Precedents: Section 54F of the Income Tax Act provides for exemption from capital gains tax if the gains are reinvested in a residential property within a specified period. Key precedents include decisions by the Karnataka High Court and the Bombay High Court, which have interpreted the term 'purchase' broadly and allowed exemptions even if the legal title was not transferred within the stipulated period.Court's Interpretation and Reasoning: The Tribunal emphasized the intention of the legislature to encourage investment in residential properties and noted that the actual use and control over the property, rather than mere registration, should determine eligibility for exemption.Key Evidence and Findings: The assessee entered into an MoU with Kumar Housing Corporation Pvt. Ltd. and transferred Rs. 10.60 crores, which was acknowledged in the subsequent sale deed.Application of Law to Facts: The Tribunal applied the principles from relevant precedents, concluding that the investment in the property via MoU sufficed for exemption under Section 54F, despite the delayed registration.Treatment of Competing Arguments: The Tribunal considered the Revenue's argument that the MoU was a colorable device but found it unconvincing given the substantial payment and subsequent registration.Conclusions: The Tribunal upheld the CIT(A)'s decision to allow the exemption under Section 54F, finding the assessee's actions consistent with the requirements of the law.Issue 2: Validity of Transaction with Related ConcernRelevant Legal Framework and Precedents: Precedents indicate that transactions with related concerns are scrutinized for genuineness but are not automatically invalidated.Court's Interpretation and Reasoning: The Tribunal found that the transaction was genuine, supported by financial transactions and subsequent legal formalities.Key Evidence and Findings: The financial transactions were documented, and the property was ultimately registered in the assessee's name.Application of Law to Facts: The Tribunal applied the principle that genuine transactions with related parties are permissible under the Act.Treatment of Competing Arguments: The Tribunal dismissed the Revenue's argument that the transaction was a sham, citing the lack of evidence to support such a claim.Conclusions: The Tribunal concluded that the transaction with the related concern was valid for the purpose of claiming Section 54F exemption.Issue 3: Investment in Disputed PropertyRelevant Legal Framework and Precedents: The legal framework allows for exemption claims even in cases of disputed properties, provided the investment is genuine.Court's Interpretation and Reasoning: The Tribunal noted that the dispute pertained only to a portion of the property and did not affect the validity of the investment for exemption purposes.Key Evidence and Findings: The Tribunal highlighted that Kumar Housing Corporation had a clear title to 3/4th of the property, which was undisputed.Application of Law to Facts: The Tribunal applied the principle that investment in a disputed property does not preclude exemption if the investment is genuine and substantial.Treatment of Competing Arguments: The Tribunal found the Revenue's concerns about the disputed status of the property insufficient to deny the exemption.Conclusions: The Tribunal concluded that the investment in the disputed property was valid for claiming the exemption under Section 54F.3. SIGNIFICANT HOLDINGSPreserve Verbatim Quotes of Crucial Legal Reasoning: The Tribunal quoted, 'The intention of the legislature was to encourage investments in the acquisition of a residential house and completion of construction or occupation is not the requirement of law.'Core Principles Established: The Tribunal reinforced the principle that substantial compliance with the investment requirements under Section 54F suffices for exemption, even if legal formalities are completed later.Final Determinations on Each Issue: The Tribunal upheld the CIT(A)'s decision to allow the exemption under Section 54F, finding the transactions genuine and compliant with the legislative intent.The Tribunal's decision underscores the importance of the substantive intent of tax provisions over procedural formalities and affirms the validity of genuine transactions with related concerns.