2025 (6) TMI 1476 - AT - Income Tax

Denial of exemption u/s 54F - as per revenue no reinvestment of sale consideration within two years from the date of original sale - HELD THAT - The law is when the assessee sold the property the sale consideration should be invested on the new property however the relevant property may be under consideration. What is relevant is the assessee should have invested in the new property out of the sale proceeds and the new property should be constructed within three years from the date of sale of the property under consideration. In the given case assessee has sold the property on 26.09.2016 and assessee should have invested and acquired the property on or before 25.09.2019 since the provisions of section 54F allows for construction of the property within a period of three years. Therefore in this case assessee has invested sale consideration in the above said property and also taken the possession as well as executed sale deed on 21.12.2018 before the statutory period allowed. Therefore the claim of the assessee is proper as per law. The tax authorities disallowed the claim of the assessee on the basis of purchase instead of construction. Therefore we are inclined to allow ground raised by the assessee. Addition made u/s 69B - difference of the value recorded in Balance Sheet versus the value recorded in the sale deed and stamp duty - HELD THAT - We find that the assessee was neither required to maintain the books of account nor maintained the books of account hence the provision of section 69B are not applicable in the case of the assessee. We further find that even otherwise the AO as well as the ld. CIT(A) had admitted that the consideration amount of FLAT as per the registered sale documents was Rs. 88.03.650/- and the stamp duty amount was Rs. 4.40.200/- and total of these two amounts is Rs. 92, 43, 850/-. We observed that as regards the figure of Rs. 1, 00, 69, 431/- shown in Schedule AL it is explained that the difference amount under dispute includes the payment made by the assessee towards cost of FLAT stamp duty charges registration charges misc/allied charges etc and these payments were made through banking channel only. The tax authorities could have asked the assessee to file the relevant information before making the addition or sustaining the same. Accordingly we are of the opinion that the addition made is not sustainable and accordingly the same is deleted and ground taken by the assessee is allowed.

The core legal questions considered by the Tribunal in this appeal are as follows:

1. Whether the assessee is entitled to claim exemption under section 54F of the Income-tax Act, 1961, given that the new residential property was booked prior to the sale of the original asset but the sale deed was executed after the prescribed period.

2. Whether the investment in the new asset can be treated as valid for exemption purposes when the possession and substantial payments were made within the statutory period, despite formal registration occurring later.

3. Whether the addition made under section 69B of the Act on account of alleged undisclosed investment due to discrepancy between the value recorded in the books of account and the sale deed/stamp duty is justified, especially when the assessee was not required to maintain books of account.

Issue 1: Entitlement to exemption under section 54F of the Act

The relevant legal framework is section 54F of the Income-tax Act, which provides exemption from long-term capital gains tax if the net sale consideration is invested in a residential house within prescribed time limits. The section allows either purchase of a new residential house within two years from the date of transfer of the original asset or construction of a residential house within three years from that date.

Precedents cited by the Revenue include decisions of the ITAT Lucknow bench and ITAT Cochin bench, which emphasize that the new asset must be acquired or constructed within the stipulated period, and that the date of completion of construction is relevant.

The assessee's argument, supported by judgments from various High Courts and ITAT benches, is that booking the flat and entering into an Apartment Buyer Agreement (ABA) with the developer constitutes acquisition or commencement of construction, and that possession was offered before the expiry of the three-year period. The assessee contends that the formal sale deed registration date is not determinative and that substantial payments and possession within the prescribed period satisfy the requirements of section 54F.

The Tribunal observed that the assessee had entered into the agreement with the builder on 14.03.2013, well before the sale of the original plot on 26.09.2016, and had made substantial payments towards the flat's cost prior to the execution of the sale deed on 21.12.2018. The Tribunal noted that the law requires the sale consideration to be invested in the new property and that the new property should be constructed within three years from the date of sale of the original asset. The Tribunal held that the assessee had invested the sale proceeds and taken possession within the statutory period, thereby fulfilling the conditions of section 54F.

The Tribunal rejected the Revenue's approach that the date of registration alone determines acquisition, emphasizing that the agreement to purchase and payments made towards construction demonstrate intent and investment. The Tribunal clarified that it is not necessary for construction to be completed before the sale of the original asset, and that the relevant period for completion is three years from the date of sale.

In conclusion, the Tribunal allowed the exemption claimed under section 54F, holding that the assessee complied with the statutory requirements by investing the sale proceeds in the new residential flat within the prescribed period.

Issue 2: Treatment of the timing of acquisition and construction for exemption under section 54F

The Tribunal examined the competing arguments on whether booking and agreement to purchase constitute acquisition or construction under section 54F. The Revenue relied on precedents holding that the new asset must be acquired or construction completed within the prescribed period, and that the date of registration is critical.

The assessee countered by relying on judicial precedents holding that the date of commencement of construction is irrelevant, and that booking and possession offered by the builder before the expiry of the statutory period suffice to claim exemption. The assessee also argued that the delay in registration was due to residing abroad and did not affect the substantive rights or investments made.

The Tribunal agreed with the assessee's interpretation, emphasizing that the relevant consideration is investment of sale proceeds in the new property and that construction may be ongoing within the three-year period. The Tribunal found that the possession letter dated 07.07.2016 indicates that construction was substantially complete within the statutory period.

The Tribunal thus held that the assessee's claim for exemption should not be denied merely because the sale deed was executed after the two-year period, as the law allows three years for construction and possession was taken within that period.

Issue 3: Addition under section 69B of the Act on account of alleged undisclosed investment

Section 69B applies where the assessee has made investments exceeding the amount recorded in books of account, and no satisfactory explanation is offered. The AO made an addition of Rs. 8,25,581/- on the ground that the value of the flat recorded in the balance sheet (Rs. 1,00,61,431/-) exceeded the value shown in the sale deed and stamp duty (Rs. 92,43,850/-).

The assessee contended that it was not required to maintain books of account and did not maintain them, hence section 69B is inapplicable. Further, the difference was explained as including allied charges such as registration and miscellaneous payments made through banking channels, which are legitimate components of the cost of acquisition.

The Tribunal noted that neither the AO nor the CIT(A) asked the assessee to substantiate the difference before making or confirming the addition. The Tribunal observed that the total consideration including allied charges legitimately exceeded the sale deed value and that the difference was explained satisfactorily.

Accordingly, the Tribunal held that the addition under section 69B was not sustainable and deleted the addition of Rs. 8,25,581/-.

Significant holdings and core principles established:

"Since the assessee has entered into an agreement with Experion Developers Pvt. Ltd. to acquire a flat on 14.03.2013 and to take the delivery after construction... the law is, when the assessee sold the property the sale consideration should be invested on the new property, however, the relevant property may be under construction. What is relevant is, the assessee should have invested in the new property out of the sale proceeds and the new property should be constructed within three years from the date of sale of the property under consideration."

"The tax authorities disallowed the claim of the assessee on the basis of purchase instead of construction. Therefore, we are inclined to allow ground raised by the assessee."

"The assessee was neither required to maintain the books of account nor maintained the books of account, hence, the provision of section 69B are not applicable in the case of the assessee."

"As regards the figure of Rs. 1,00,69,431/- shown in Schedule AL, it is explained that this figure includes the payment made by the assessee towards cost of FLAT, stamp duty charges registration charges, misc/allied charges etc and these payments were made through banking channel only. The tax authorities could have asked the assessee to file the relevant information before making the addition or sustaining the same. Accordingly, we are of the opinion that the addition made at Rs. 8,25,581/- is not sustainable and accordingly the same is deleted."

The final determinations are:

- The exemption under section 54F is allowed as the assessee invested the sale proceeds in the new residential flat within the statutory period, considering the booking, possession, and payments made, notwithstanding the delayed registration of the sale deed.

- The addition under section 69B is deleted as the assessee was not required to maintain books of account, and the difference in value was satisfactorily explained as including allied charges paid through banking channels.

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