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Issues: Whether the assessee is entitled to exemption under section 54 of the Income-tax Act, 1961 in respect of long-term capital gains where amounts were invested towards purchase of plot, architect fees and advances for construction and construction was commenced but not completed within three years from date of transfer.
Analysis: The Tribunal examined whether the condition in section 54 requiring purchase or construction within the prescribed periods precludes exemption where the assessee has invested capital gains by paying for purchase of plot, architect fees and advances for construction and has commenced construction but could not complete it within three years due to delay in sanction of building plans. The Tribunal considered the statutory scheme of section 54 and section 54(2) which treats amounts utilised and deposited in the specified account as cost of the new asset for the purpose of exemption, and relied on precedent interpreting identically worded provisions (including decisions on section 54G and authorities applying section 54/54F) holding that payment of advances and commencement of construction within the window period amounts to utilisation of capital gains. The Tribunal noted factual material showing provisional allotment, payments for land and architect fees, and evidence of construction activity commenced within three years, and distinguished the requirement of completion in all respects within three years from the requirement of utilisation/deposit of capital gains within the statutory window.
Conclusion: The exemption under section 54 of the Income-tax Act, 1961 is available to the assessee because the capital gains were invested (by payment for purchase of plot, architect fees and advances and commencement of construction) within the statutory window; accordingly the addition of Rs. 2,86,42,500 made by the assessing officer and confirmed by the CIT(A) is deleted and the assessee's appeal is allowed.
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