Exemption of Interest Payment u/s 234 towards Capital Gains

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Dear Forum Members

I am writing to seek expert opinion from the members of this forum regarding an interest payment on long term capital gains tax. Details of my query are below

I had sold a plot in February 2014, and the capital gains was invested in a capital gains account scheme with an authorised bank with the intention of buying a plot and constructing a house within the 3-year period. Despite my best efforts and very extensive search, I could not buy a plot (and construct a house) within the 3-year period and I would like to quote 2 specific instances to support my efforts

1. An advance of ₹ 1 lakh paid towards a plot in February 2016, I did not proceed with the plot purchase as the titles were not clear. The advance was withheld by the seller and not re-paid / returned back to me. I have a receipt towards the advance payment made by me

1. Another plot finalised by me in May 2016 and advance of ₹ 5 lakhs paid to the developer towards the plot in July 2016 with plot registration planned in September 2016. Unfortunately the Madras High Court banned registration of unapproved plots in early September 2016. The plot I was scheduled to register in September 2016 was an unapproved plot (more than 97% of plots in Tamil Nadu are unapproved). I waited for the ban to be lifted till Nov 2016 to see if there was a hope of registering the plot and commencing construction of a house. But the ban has not been lifted as of March 2017. The ₹ 5 lakhs advance was paid from the capital gains account and the advance was subsequently returned back to the account in Nov 2016. There are receipts and documentary evidences to support this

In Feb 2017 at the conclusion of the 3-year period from the date of plot sale I had closed the capital gains account scheme with the objective of declaring the capital gains in my FY 2016-2017 income and the interest accrued on the capital gains account too in my FY 2016-2017 income

My auditor has worked out the tax liability for me for FY 2016-2017. My auditor has advised me to pay tax on the capital gains and the interest accrued besides he has advised me to pay a penalty and interest on the capital gains u/s 234 B & C as I have not utilised the amount deposited in capital gains account and since my intent was not on utilising the capital gains within the 3-year period.

My query is I had deposited the capital gains in the capital gains account scheme with the intention of buying a plot and constructing a house within the 3 year period, and I have made several attempts towards that and I have proofs towards my attempts to buy a plot and construct a house as I have explained above. My auditor says that there is no scope for any exemption and that the Income Tax software does not permit

I need advice from experts on this forum if I am liable to pay interest on the capital gains u/s 234 B & C since my intention was to buy a plot and construct a house within the 3 year period.

Please advise if there is a possibility for seeking exemption towards interest on the capital gains u/s 234 B & C as per my description above

Suggestions and views from experts will be very much appreciated

Regards

P S Krishnan

Chennai

AI Summary

Interest under section 234B and 234C on unutilised capital gains deposit questioned due to bona fide attempts to reinvest. Taxpayer deposited long term capital gains in a capital gains account scheme intending to acquire land and build a house but, despite documented bona fide attempts including advances and returned payments, could not complete acquisition within the three year period; after closing the account and declaring gains and accrued interest, the auditor advised tax plus penalty and interest under the delayed payment provisions, and the taxpayer seeks if exemption from such interest and penalties is available based on the efforts and evidence.