Section 54F claim in reassessment can cover allotted residential units under a development agreement

In reassessment proceedings, a taxpayer may raise a section 54F claim where it is directly connected to the escaped capital gains, and the claim is not barred merely because it was omitted from the original return. The analysis also treats consideration receivable under a joint development agreement, in the form of allotted residential units, as capable of constituting investment in the construction of a new residential house for section 54F purposes. The exemption claim therefore remained open for examination on the remaining statutory conditions, and fresh adjudication by the Assessing Officer was required.

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Issues: Whether, in reassessment proceedings, the assessee could raise a claim for deduction under section 54F of the Income-tax Act, 1961, and whether the consideration receivable under a joint development agreement, in the form of allotted residential units, could qualify as investment in the construction of a new residential house for the purposes of section 54F.

Analysis: Reassessment proceedings under section 147 are confined to escaped income and do not permit an assessee to reopen concluded matters unrelated to the escapement. However, a claim that is directly relatable to the income brought to tax in reassessment may be examined, even if it was not raised in the original return, where the relevant material is already on record or can be considered in appeal. On the substantive exemption issue, the share in the residential units agreed to be allotted under the development arrangement was treated as consideration invested in construction of a residential house. The agreed allotment of constructed residential units under the development arrangement was held to fall within the scope of section 54F.

Conclusion: The assessee was entitled to raise the section 54F claim in relation to the reassessed capital gains, and the allotment under the development agreement could qualify for exemption under section 54F, but the matter required fresh adjudication by the Assessing Officer on the remaining conditions.

Final Conclusion: The addition was not finally sustained on the exemption issue, and the matter was sent back for reconsideration with directions to examine the assessee's claim under section 54F.

Ratio Decidendi: In reassessment, an assessee may raise a claim that is directly connected to the escaped income, and consideration receivable as allotted residential units under a development agreement can constitute investment in construction of a residential house for section 54F purposes.

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