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Mrs. Seema Sabharwal Versus The ITO, Ward-4, Panchkula

2018 (2) TMI 863 - ITAT CHANDIGARH

Claim of exemption u/s 54 - AO denied the claim because as per the agreement with the builder, the house was to be completed within 4 years, whereas, as per the provisions of section 54 of the Act, the house should have been constructed within 3 years from the date of receipt of the capital gains - Held that:- Various courts have held that if assessee invests the amount in purchase / construction of building within the stipulated period and the construction is in progress, then the benefits of e .....

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if agreement for purchase of residential flat is made and the entire amount is paid within three years from the date of sale, the basic requirement for claiming relief u/s 54(1) of the Act is to be taken as fulfilled. The issue, thus, is squarely covered in favour of the assessee by the various decisions of the Hon'ble High Court. - Assessee did not deposit the amount of sale receipt in the capital gains account scheme before the due date for filing of return u/s 139(1) - Held that:- If .....

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he first issue. The assessee has proved such investment during the assessment proceedings and, thus, the assessee has complied with the requirement of substantive provisions and, thus, is entitled to the claim of exemption u/s 54F of the Act. In view of this, we direct the Assessing officer to grant exemption to the assessee as permissible under the provisions of section 54 - Assessee appeal allowed. - ITA No. 272/Chd/2017 - Dated:- 5-2-2018 - SHRI SANJAY GARG, JUDICIAL MEMBER AND Ms. ANNAPURNA .....

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on sale of Flat No. 1902 M. Marathan Next Gen. Lower Parel, Mumbai for ₹ 5,20,00,000/- on 17.09.2012, after reducing thereon indexed cost at ₹ 1,31,67,571/-, cost of transfer at ₹ 35,000/- and cost of improvement at ₹ 86,98,452/-. The Assessing officer examined about claim of various costs and after considering the documentary evidences submitted by the assessee accepted the cost of house at ₹ 1,35,22,571/- and cost of improvement at ₹ 86,98,452/-. Thus, compu .....

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sions of section 54, Long Term Capital Gain on sale of residential house was required to be invested in purchase of residential house within a period of one year before or two years after the date of transfer or construction of residential house within a period of three years after the date of transfer. In the case of assessee, the transfer of residential house took place on 17.09.2012 and investment in another residential house as per agreement took place on 11.09.2014. As per clause 15 of agre .....

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the above order of the Assessing officer, the assessee preferred appeal before the CIT(A) and cited various case laws wherein it has been held that if assessee invests the capital gains in a house which is under construction and due to some reasons, the possession is delivered late to the assessee, even then, the investment of the amount will be considered towards the purchase / consideration of the house and that the assessee in these circumstances will be eligible to claim deduction u/s 54 of .....

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uction u/s 54F and not u/s 54 of the Act, whereas, the assessee had claimed deduction u/s 54 of the Act. He held that though the section 54F is on condition of investment in residential house, however, the section 54 did not have the word investment in residential house. He, therefore, held that the case laws cited by the assessee were not applicable to the case in hand. He further observed that even the assessee was supposed to deposit the proceeds from the sale of house property in the specifi .....

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assessee had failed to comply with the conditions stipulated u/s 54(2) of the Act. He, therefore, confirmed the action of the Assessing officer in disallowing the claim of the assessee. 4. We have heard the rival contentions and have also gone through the records. Admittedly, the capital gain had arisen to the assessee on 17.9.2012 and the amount was paid by the assessee to the builder for purchase of a new house on 9.9.2014 i.e. within 2 years of the date of transaction of sale of the house pro .....

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rovisions of sections 54 & 54F of the Act have been enacted i.e to promote purchase and construction of residential houses. Various courts have held that if assessee invests the amount in purchase / construction of building within the stipulated period and the construction is in progress, then the benefits of exemptions, cannot be denied to the assessee. Reliance in this respect can be placed on the decision of the Jurisdictional High Court of Punjab & Haryana in the case of Mrs. Madhu K .....

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s 54F of the Act the investment is to be considered and / or that u/s 54 of the Act, the house must be completed within the stipulated period of three years or that investment is not be considered. We may further point out here that even the decision of the Hon'ble Calcutta High Court is in relation to the provisions of section 54 only, wherein, the Hon'ble Calcutta High Court has categorically held that if agreement for purchase of residential flat is made and the entire amount is paid .....

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ounsel for the assessee in this respect has submitted that since the provisions of section 54 are beneficial provisions promoting purchase / construction of residential houses, hence, liberal construction should be taken to the provisions. He has further submitted that since the assessee had complied with the investment of the amount earned in purchase / construction of other house, within the stipulated period, hence, substantial compliance has been made by the assessee. 7. On the other hand, L .....

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54 of the Act herein under:- Profit on sale of property used for residence. 54. (1) Subject to the provisions of sub-section (2), where, in the case of an assessee being an individual or a Hindu undivided family, the capital gain arises from the transfer of a long-term capital asset, being buildings or lands appurtenant thereto, and being a residential house, the income of which is chargeable under the head "Income from house property" (hereafter in this section referred to as the orig .....

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gain is greater than the cost of the residential house so purchased or constructed (hereafter in this section referred to as the new asset), the difference between the amount of the capital gain and the cost of the new asset shall be charged under section 45 as the income of the previous year; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall b .....

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ase of the new asset made within one year before the date on which the transfer of the original asset took place, or which is not utilised by him for the purchase or construction of the new asset before the date of furnishing the return of income under section 139, shall be deposited by him before furnishing such return [such deposit being made in any case not later than the due date applicable in the case of the assessee for furnishing the return of income under sub-section (1) of section 139] .....

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set : Provided that if the amount deposited under this sub-section is not utilised wholly or partly for the purchase or construction of the new asset within the period specified in sub-section (1), then,- (i) the amount not so utilised shall be charged under section 45 as the income of the previous year in which the period of three years from the date of the transfer of the original asset expires; and (ii) the assessee shall be entitled to withdraw such amount in accordance with the scheme afore .....

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tial house, the capital gains will not be charged to tax upto the extent of the amount spent on the purchase or construction of residential house. Sub Section (1) of section 54 of the Act is a substantive provision enacted with the purpose of promoting purchase / construction of residential houses. However, sub section (2) of section 54 is an enabling provision which provides that the assessee should deposit the amount earned from capital gains in a scheme framed in this respect by the Central G .....

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assessment proceedings, subsequent to the date of transfer of the original asset, an assessee may claim that he will invest the amount in purchase / construction of a new house, though not have taken any steps towards that direction till then. In such a scenario, there should not be any method or procedure before the Assessing officer through which he could gather the real intention of the assessee, as the assessee, by saying so, may delay the taxation of the capital gains earned at least for t .....

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at the return of the assessee should be accompanied by submitting a proof of such deposit, hence, sub section (2) is an enabling provision which governs the Act of the assessee, who intends to claim the benefit of the exemption provisions of section 54. The real purpose of the enabling provision is the compliance of the substantial provision of sub section (1) to section 54 of the Act. Sub section (2), in fact, regulates the procedure for the substantive rights of the exemption provisions u/s 54 .....

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efit of exemption provisions. In our view, if the assessee at the time of assessment proceedings, proves that he has already invested the capital gains on the purchase / construction of the new residential house within the stipulated period, the benefit under the substantive provisions of section 54(1) cannot be denied to the assessee. Any different or otherwise strict construction of sub section (2), in our view, will defeat the very purpose and object of the exemption provisions of section 54 .....

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When the assessee invests the entire sale consideration in construction of a residential house within three years from the date of transfer can he be denied exemption under Section 54F on the ground that he did not deposit the said amount in capital gains account scheme before the due date prescribed under Section 139(1) of the IT Act? 10. The said question has been answered by the Hon'ble High Court in the following words:- As is clear from Sub Section (4) in the event of the assessee not .....

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