2019 (7) TMI 1613 - AT - Income Tax

Revision u/s 263 - enhanced sale consideration received by the assessee due to the delay in the sale transaction on account of the fault of the buyer of the property termed as interest - HELD THAT - It is pertinent to mention that there is no finding by the Ld. CIT as to what was the rate of interest charged by the assessee for the delayed payment. It can be only construed that the entire payment received by the assessee was only on account of sale consideration . Therefore there is no mistake committed by the Ld. AO while passing his order being prejudicial to the interest of the Revenue. Hence the finding of the Ld. CIT on this count is erroneous. Granting deduction u/s. 54F - assessee has not constructed the house within the stipulated period provided under the Act in order to claim the benefit of deduction - HELD THAT - Various higher judiciaries cited by the assessee before the Ld.CIT has held that if the assessee invests the entire capital gains for construction of the residential house within the stipulated period and if there is a delay in the construction due to the fault of the builder / promoter wherein the assessee has no control over the builder/promoter for such delay then the assessee cannot be held to be in fault and shall be entitled for the benefit of deduction u/s 54F of the Act. Considering these decisions which are also cited in the Order of the Ld. CIT the order of the Ld. AO for granting deduction U/s. 54F of the Act has merits and not erroneous. Therefore the finding of the Ld. CIT that the order of the Ld. AO is prejudicial to the interest of the Revenue is devoid of merits. Considering these facts and circumstances of the case we are to the considered view that the Ld. CIT is not right in his rem to invoke his powers U/s. 263 of the Act on these two counts in the case of the assessee. We hereby quash the order of the Ld. CIT passed U/s. 263 - Decided in favour of assessee.

Summary

Issues:
1. Whether the Ld. CIT correctly invoked powers under section 263 of the Act in treating the assessment order as erroneous and prejudicial to the interests of the Revenue.
2. Whether the interest earned on delayed receipt of sale consideration should be treated as "income from other sources."
3. Whether the assessee's claim for exemption under section 54F of the Act was rightly disallowed.

Analysis:

Issue 1: The appeal was filed against the Ld. CIT's order invoking powers under section 263 of the Act. The Ld. CIT set aside the assessment order passed under section 143(3) of the Act and directed to treat the interest earned on delayed sale consideration as "income from other sources" and disallowed the assessee's claim for exemption under section 54F of the Act. The Ld. AR argued that the enhanced sale consideration due to delay cannot be termed as interest, and the entire amount received was towards the sale of the property. The Tribunal found merit in the Ld. AR's submissions, stating that the Ld. AO's order was not prejudicial to the Revenue's interests. The Tribunal quashed the Ld. CIT's order under section 263, concluding that there was no mistake committed by the Ld. AO.

Issue 2: The Ld. CIT directed to treat the interest earned on delayed sale consideration as "income from other sources." The Ld. AR argued that the enhanced sale consideration due to delay should not be considered as interest. The Tribunal agreed with the Ld. AR, emphasizing that there was no finding on the interest rate charged for delayed payment. It concluded that the entire payment received was part of the sale consideration, and hence, the Ld. AO's decision was not erroneous.

Issue 3: The Ld. CIT disallowed the assessee's claim for exemption under section 54F of the Act, stating that the house was not constructed within the stipulated period. The Ld. AR argued that the delay in construction was due to the builder's fault, beyond the assessee's control. The Tribunal cited various judgments supporting the assessee's position that if there is a delay in construction due to the builder's fault, the assessee should be entitled to the deduction under section 54F. It found the Ld. AO's decision appropriate and not prejudicial to the Revenue's interests, quashing the Ld. CIT's order under section 263.

In conclusion, the Tribunal allowed the appeal of the assessee, emphasizing that the Ld. CIT's decision to invoke powers under section 263 was erroneous, and the Ld. AO's orders were found to be correct and not prejudicial to the Revenue's interests.