2025 (1) TMI 29 - AT - Income Tax

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

DCIT, Circle – 7, Pune Versus Kruti Lalitkumar Jain

DCIT, Circle – 7, Pune Versus Kruti Lalitkumar Jain - TMI 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.