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2019 (11) TMI 416

..... the capital gain account - HELD THAT:- Mere non compliance of a procedural requirement under Section 54(2) itself cannot stand in the way of the assessee in getting the benefit under Section 54, if he is, otherwise, in a position to satisfy that the mandatory requirement under Section 54 (1) is fully complied with within the time limit prescribed therein. The claim of the assessee for deduction of the disputed sum towards the additional construction cost was rejected only on the ground that the said sum was not deposited in the capital gain account. In view of findings Revenue is not justified in making such objection. On the other hand, it has to verify as to whether the said sum was utilised by the petitioner within the time stipulated under Section 54(1) for the purpose of construction. If it is found that such utilisation was made within such time, the Revenue is bound to grant deduction. Therefore, this Court is of the view that the matter needs to go back to the first respondent for considering the issue as to whether the disputed amount, claimed by the assessee as deduction, has been utilised by the petitioner towards the additional construction within the time limit prescri .....

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..... d under Section 143(1) of the said Act vide communication dated 29.06.2015. The petitioner requested the Developer to allow him to decide on the construction quality and type of material to be used for superstructure and promised to bear the additional costs involved and to pay to the suppliers/professionals directly. By the time, the above proposals incurring additional expenditure on petitioner s portion of the superstructure was accepted by the developer, the time for depositing the money into Capital Gains Deposit Scheme had lapsed. The petitioner subsequently submitted a petition on 29.12.2016 under Section 264 of the Income Tax Act, 1961, seeking revision of the above assessment dated 29.06.2015 after taking into account the additional expenditure incurred by the petitioner towards acquiring the new Capital Asset within the prescribed time limit of 3 years. An overall expenditure of ₹ 4,08,54,108 was incurred towards additional cost of construction in which 1/4th share of HUF comes to ₹ 1,02,13,527. The petitioner submitted before the first respondent all the details and particulars of extra expenditure incurred towards the additional cost of construction to justi .....

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..... time limit of three years and submitted the relevant accounts for scrutiny and acceptance. The petitioner had also deposited ₹ 37.50 lakhs into the capital Gain Bond Scheme prior to filing of the I.T. Return for the relevant assessment year towards the anticipated capital expenditure in acquiring the new residential assets. It is only due to the unforeseen nature of the additional expenditure that had to be incurred for the reasons stated in the affidavit that the petitioner could not comply with the directory provision under Section 54(2) while acquiring the new residential asset. Section 54(2) is only procedural requirements in the form of a directory provision to ensure that the mandatory condition under Section 54(1) is complied within the prescribed time limit of three years. The interpretation of exemptions to the benefit of Revenue does not mean that the rightful claims of assessees shall be denied to obtain unjust enrichment to the revenue. The non compliance of Section 54(2) has not caused any loss to the revenue. The respondents have not disputed that the petitioner have not complied with the conditions in Section 54(1). The capital gain transaction involves two le .....

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..... unt under the Capital Gain Account. The impugned order has been rightly passed by stating the above reasons. The decision of the Karnataka High Court relied on by the petitioner is on different facts and circumstances and therefore, it will not help the petitioner in any manner. In support of the contention, the learned counsel relied on the decision of the Hon ble Supreme Court reported in 2018 SCC online SC 747, Commissioner of Customs v. Dilip Kumar and Company. 7. Heard both sides. 8. The petitioner is the HUF. The HUF is an assessee under the Income Tax Department and its accounts are being assessed under PAN AAIHV5089G. The petitioner HUF and the Kartha of the HUF in his individual capacity owned a property situated at No.5 (Old No.3), Seshadri Road, Alwarpet, Chennai-18 with 1/4th share and 3/4th share respectively over the same. The said property was developed by entering into a development agreement on 15.04.2013 with the developer. While the 3/4th share of the property, on completion of its development, was agreed to be released in favour of the developer or his nominees, 1/4th share of the said property is agreed to be retained by the petitioner HUF. Accordingly, the pet .....

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..... ). 11. Section 54 of the Income Tax Act, 1961, deals with profit on sale of property used for residence. It contemplates that 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 and the assessee has, within a period of one year before or two years after the date on which the transfer took place, purchased or has, within a period of three years after that date, constructed, one residential house in India, then the capital gain shall be dealt with in accordance with the provisions made under Section 54(1)(i)(ii) instead of being charged to income tax as income of the previous year in which the transfer took place. In other words, to put it precisely, the capital gain so landed in the hands of the assessee, instead of being dealt with as income, will be dealt with by giving deduction to such capital gain, provided the assessee has satisfied the requirement contemplated under the above said provision. For seeking benefit of deduction under Section 54, the assessee should have purchased one residential house either one .....

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..... nnot be read in isolation and on the other hand, application of Section 54(2) should take place only when the assessee failed to satisfy the requirement under Section 54(1). While the compliance of requirement under Section 54(1) is mandatory and if complied, has to be construed as substantial compliance to grant the benefit of deduction, the compliance of requirement under Section 54(2) could be treated only as directory in nature. If the assessee with the material details and particulars satisfies that the amount for which deduction is sought for under Section 54 is utilised either for purchasing or constructing the residential house in India within the time prescribed under Section 54(1), the deduction is bound to be granted without reference to Section 54(2), which compliance in my considered view, would come into operation only in the event of failure on the part of the assessee to comply with the requirement under Section 54(1). Mere non compliance of a procedural requirement under Section 54(2) itself cannot stand in the way of the assessee in getting the benefit under Section 54, if he is, otherwise, in a position to satisfy that the mandatory requirement under Section 54 ( .....

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