Capital gain exemption under section 54F if flat cancelled due to delay by the builder

Short Overview  : Where assessee did not furnish any evidence of payment towards deposit made with the builder with whom she had entered into an agreement for purchase of new flat, her claim of deduction under section 54F could not be entertained without furnishing payment details. Thus, she was directed to furnish complete evidence towards payment before AO for verification.

After sale of property, in order to purchase a new flat, assessee claimed that she had made three payments towards ‘negotiation deposit” with the builder within the time limit permitted under section 54 and thus, claimed deduction under section 54F. Assessee filed copy of the apartment buyer’s agreement. Revenue alleged that assessee did not produce any agreement entered into with the builder for the purchase of flat before the authorities below with regard to the claim of three payments made for the purchase. Revenue alleged that mere agreement without payment evidence, the claim of deduction could not be allowed.

It is held that : The payment through three cheques for a total amount before due date of filing of return of income under section 139 was not in dispute. When there was no clarity on the purpose for which assessee made payment with the builder, under section 133, AO could have called for details/explanation from the builder, which was not done by AO. Since there was long delay in construction of property, assessee made a request for withdrawal of the amount paid and the entire amount was refunded to assessee. However, assessee did not furnish any evidence of payment towards deposit made with the builder with whom the assessee has entered into an agreement for purchase of new flat. Without furnishing payment details, assessee’s claim could not be entertained. Assessee was directed to furnish complete evidence towards payment of the amount before AO for verification. If the details were found to be correct, the claimed deduction under section 54F was allowable and otherwise not.

Decision: In assessee’s favour by way of remand.

IN THE ITAT, CHENNAI

INTURI RAMA RAO, A.M. AND DUVVURU RL REDDY, J.M.

Archana Kanwar v. ITO

ITA No. 74/Chny/2019

7 June, 2019

Appellant by: B. Ramakrishnan, CA

Respondent by: Mathivanan, Jt. CIT

Duvvuru R.L. Reddy, J.M.

This appeal filed by the assessee is directed against the order of the learned Commissioner(Appeals) 12, Chennai, dt. 31-8-2018 relevant to the assessment year 2012-13. The effective ground raised in the appeal of the assessee is that the learned Commissioner(Appeals) has erred in confirming the denial of exemption claimed under section 54F of the Income Tax Act, 1961 [“Act” in short].

2. Brief facts of the case are that the assessee filed here return of income for the assessment year 2012-13 on 28-7-2012 admitting a total income of Rs. 34,670. The assessment in this case was reopened and notice under section 143(2) of the Act dt. 18-2-2015 was issued. On perusal of the assessment records, the learned Principal CIT passed order under section 263 of the Act on 30-3-2017 after affording opportunity to the assessee on the issue of interest on borrowed capital and claim of deduction allowed under section 54F of the Act. Accordingly, after considering the submissions of the assessee, the assessing officer completed the assessment under section 143(3) read with section 263 of the Act by assessing taxable income at Rs. 63,71,710 after disallowing the claim of deduction under section 54F of the Act. On appeal, the learned Commissioner(Appeals) confirmed the disallowance.

3. On being aggrieved, the assessee is in appeal before the Tribunal. The learned counsel for the assessee has submitted that after sale of property, in order to purchase a new flat, the assessee made three payments towards ‘negotiation deposit” with the builder within the time limit permitted under section 54 of the Act and thus, claimed deduction under section 54F of the Act. The learned counsel filed copy of the apartment buyer’s agreement between M/s. DSS Buildtech (P) Ltd. and the assessee dt. 8-11-2016. Once the payments made by the assessee out of sale consideration was not in dispute, the assessing officer wrongly denied the claim of deduction and the learned Commissioner(Appeals) has erroneously confirmed such denial and prayed for allowing the claim of deduction under section 54F of the Act.

4. Per contra, the learned Departmental Representative has submitted that the assessee has not produced any agreement entered into with the builder for the purchase of flat before the authorities below with regard to the claim of three payments made for the purchase. Even though the first proposal for purchase of flat was not materialized, the evidence towards payment for subsequent purchase of flat as per agreement between M/s. DSS Buildtech (P.) Ltd and the assessee was not brought on record. Mere agreement without payment evidence, the authorities below have rightly denied the claim of deduction and pleaded for upholding the same.

5. We have heard both the sides, perused the materials available on record and gone through the orders of authorities below. During the previous year relevant to the assessment year 2012-13, the assessee sold a vacant plot at Gurgaon, Haryana for a consideration of Rs. 75,00,000 after reducing the index cost of acquisition [Rs. 3,77,585] the net long term capital gains was arrived at Rs. 71,22,415. Out of this, long term capital gain, a sum of Rs. 59,22,521 was claimed as deduction under section 54F of the Act towards investment in new flat. Another sum of Rs. 15,77,479 was claimed as deduction under section 54EC of the Act. In support of the purchase of a new flat, the assessee furnished only copy of three receipts dt. 7-7-2012 issued by Vascon Engineers Limited towards “Negotiation Deposit” based on which, deduction was claimed under section 54F of the Act. However, the assessee has not produced any construction agreement with the builder. The payment through three cheques for a total amount of Rs. 59,22,521 before due date of filing of return of income under section 139 of the Act was not in dispute. When there was no clarity on the purpose for which the assessee made with the builder, under section 133 of the Act, the assessing officer would have called for details/explanation from the builder, which was not done by the assessing officer. Since the assessee has paid sizeable amount towards purchase of new flat out of the sale consideration, the department cannot deny the claim of deduction under section 54F of the Act. However, the reason for not filing copy of the purchase agreement with the builder against which the payment was made by the assessee was not explained. The assessee is liable to file complete details for claiming any deduction under Income Tax Act, otherwise, such deduction is not allowable.

6. Since there was long delay in construction of property, the assessee made a request dt. 18-8-2014 for withdrawal of the amount paid and the entire amount of Rs. 59,22,521 was refunded to the assessee on 6-2-2015. However, the assessee has not furnished any evidence of payment of Rs. 59,22,521 with the builder with whom the assessee has entered into an agreement for purchase of new flat. Without furnishing payment details, the assessee’s claim cannot be entertained. In view of these facts and circumstances, we direct the assessee to furnish complete evidence towards payment of the above amount before the assessing officer for verification and the details are found to be correct, the assessee can be allowed to claim deduction under section 54F of the Act and otherwise not. Further, the assessing officer is also directed to call for explanation from the builder to verify as to what purpose the assessee made payment on 7-7-2012 and subsequently, it was refunded to the assessee on 6-2-2015. Levy of interest under section 234B and 234C of the Act is consequential to the tax liability.

7. In the result, the appeal filed by the assessee is allowed for statistical purposes.

Order pronounced on the 7-6-2019 in Chennai.