Reassessment by non-jurisdictional assessing officer held invalid; exemption under section 54F allowed for home bought in close family members' names

ITAT DELHI - AT held the reassessment order passed by a non-jurisdictional AO was illegal and set it aside, allowing additional grounds challenging jurisdiction. The Tribunal also found the CIT(A) erred in denying exemption under s.54F where sale proceeds were invested in residential property purchased or constructed in the assessee's close family members' names (wife and minor son); such transfers did not defeat s.54F entitlement. Consequently the assessee's appeal was allowed.

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ISSUES PRESENTED AND CONSIDERED

1. Whether an assessment/reassessment order passed by an Assessing Officer who is non-jurisdictional is illegal and liable to be set aside even if jurisdictional objection was not raised during assessment or on first appeal.

2. Whether exemption under Section 54F is allowable where the entire sale proceeds of a capital asset were applied to purchase/construct residential houses registered in the name of the assessee's son (a minor at acquisition) and/or where construction payments were made after withdrawal from bank without depositing proceeds in a designated capital-gain account before filing the original return; and whether multiple residential houses (at different locations) can qualify for exemption under Section 54F.

ISSUE-WISE DETAILED ANALYSIS - ISSUE 1: Validity of assessment by non-jurisdictional officer

Legal framework: Reassessment under Sections 147/148 requires issuance of notice and compliance with jurisdictional rules; an order passed by an authority lacking jurisdiction is vulnerable to being quashed.

Precedent treatment: The Tribunal referred to the view in the High Court decision that where an order is passed by a judicial or quasi-judicial authority having no jurisdiction, the appellate forum has an obligation to rectify and set aside such order. The principle that jurisdiction cannot be conferred by assent of parties or by waiver was noted.

Interpretation and reasoning: The Tribunal examined the record and found that reassessment proceedings were initiated by one ward (Ward-3) but the final assessment order was signed by a different ward (Ward-2) without any communication of change in jurisdiction to the assessee. The Tribunal treated the change of officer as constituting exercise of jurisdiction by a non-jurisdictional officer.

Ratio vs. Obiter: Ratio - an assessment order passed by a non-jurisdictional Assessing Officer is illegal and must be set aside even if the jurisdictional objection was not raised earlier in the assessment or appellate proceedings. (The Tribunal applied the cited High Court authority as binding guidance on this point.)

Conclusion: The reassessment/assessment order passed by the non-jurisdictional officer was held illegal and set aside. Additional grounds challenging jurisdiction were allowed; related additional grounds rendered academic.

ISSUE-WISE DETAILED ANALYSIS - ISSUE 2: Entitlement to exemption under Section 54F where new properties are in name of son and procedural compliance with Section 54F(4)

Legal framework: Section 54F provides exemption from long-term capital gains where the assessee purchases or constructs a residential house within stipulated time and invests the net consideration accordingly; Section 54F(4) (and allied provisions) prescribe procedural aspects such as deposit in capital gains account scheme before certain stages (e.g., filing of return).

Precedent treatment (followed/distinguished): The Tribunal relied on authoritative precedents favoring a purposive construction of Section 54F, holding that (a) the new residential property need not be purchased exclusively in the assessee's name where the funds originate from the assessee; (b) multiple residential houses purchased/constructed may qualify; and (c) mere non-compliance with procedural deposit requirements does not defeat substantive entitlement where funds were ultimately invested in construction within the statutory time. Decisions cited include High Court authority applying purposive construction when property was acquired in a relative's name, Madras/Karnataka High Court authorities on completion/utilisation within time, and Tribunal decisions applying those principles.

Interpretation and reasoning: The Tribunal considered facts that the entire sale proceeds were utilized for purchase of land (in son's name when minor) and for construction of houses; bank statements and payments to builders demonstrated that payments were made from the assessee's funds. Applying purposive interpretation, the Tribunal held that Section 54F requires purchase/construct of "a residential house" but does not mandate that the house be in the assessee's name exclusively. The Tribunal treated non-compliance with procedural deposit requirement (deposit in capital gains account before filing return) as not fatal where the sum was invested in construction within the statutory period and the origin and application of funds were established.

Ratio vs. Obiter: Ratio - where the entire sale proceeds of the original capital asset are shown to have been applied to acquisition/construction of residential property within the statutory period, exemption under Section 54F cannot be denied merely because title is in a close relative's name (e.g., son) or because procedural deposit formalities were not complied with, provided the substantive conditions are satisfied. Obiter - observations on the permissibility of multiple houses being treated as qualifying units were supported by cited judgments but are contextual to the facts (distinct locations and demonstration of investment from sale proceeds).

Conclusion: The Tribunal held that the lower appellate authority erred in restricting/refusing exemption. In light of demonstrated application of sale proceeds to purchase/construct residential houses (including those in the son's name) and relevant precedents endorsing purposive construction and substantive compliance, the exemption under Section 54F was allowed in respect of the claimed investment; the addition of long-term capital gains on this account was set aside and grounds challenging denial of Section 54F were allowed.

CROSS-REFERENCES AND CONSEQUENCES

1. The jurisdictional defect ruling (Issue 1) directly led to setting aside the impugned assessment order; the Tribunal nevertheless proceeded to decide the Section 54F entitlement on merits and allowed the claim under Issue 2.

2. The Tribunal applied the principle of purposive construction of relief provisions (Section 54F) and followed higher court and co-ordinate bench decisions that emphasize substance over form where the source and application of funds can be satisfactorily established.

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