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Exemption U/s 54F eligible if delay in

investment was beyond control of Assessee
 CAPOONAM
 | Income Tax - Judiciary
 02 Mar 2019
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Case Law Details

Case Name : Dashrath Ambalal Patel Vs ITO (ITAT Ahmedabad)

Appeal Number : I.T.A. No. 296/Ahd/2014
Date of Judgement/Order : 01/01/2019
Related Assessment Year : 2007-08
Courts : All ITAT (5720) ITAT Ahmedabad (397)
Download Judgment/Order

Dashrath Ambalal Patel Vs ITO (ITAT Ahmedabad)

Conclusion: Assessee is eligible for exemption u/s 54F for the amount invested beyond the
prescribed period but before getting the property registered since there was sufficient reason,
beyond the control of the assessee, which prevented the assessee from making investment within
prescribed time.

FACTS –

Assessee, an individual, is engaged in the business of labour work for electric fitting. Assessee
was the 1/3rd owner in the property bearing block no. 755-756 measuring about 23169 sq.mt.
along with two other persons. The said property was sold for INR 66,00,000 vide sale deed dated
13th August, 2006. Assessee being 1/3rd owner of the property had INR 22,00,000 as sale
consideration. Assessee had capital gain of around INR 9,57,447, however, claimed exemption
u/s 54F on account of investment of INR 11,11,000 in another property.
During the assessment proceeding, AO observed that the new property was registered on
10th October, 2011 which was beyond the time period prescribed in section 54F and hence AO
objected the exemption and accordingly made addition of LTCG amount to INR 9,57,447.

Assessee submitted that payment was made before the execution of sale deed and delay in
registration of sale deed was due to some civil litigation and various statutory authorities order
which was beyond its control and hence exemption u/s 54F cannot be declined.

The CIT(A) allowed the exemption u/s 54F amounting to INR 4,83,511 contenting that the
exemption u/s 54F is available in proportion out of LTCG which the investment in new property
with total sale consideration [i.e. (9574477X11,11,000)/22,00,000].

Assessee claimed investment of INR 11,11,000 before AO, however, claimed investment of INR
19,34,000 for the first time before CIT(A). INR 8,34,000 was paid beyond the prescribed period
of 3 years but before getting property registered.

HELD –

Re-investment was delayed on account of the property dispute which was beyond the control of
the assessee and therefore the assessee is very much eligible for deduction u/s 54F for the
amount which has been invested by him beyond the prescribed period but before getting the
registration of the property.

Since investment of INR 8,34,000 was claimed for the first time before CIT(A), AO was directed
to verify the amount invested by the assessee and allow the exemption u/s 54F for the amount
invested in the property beyond the prescribed period but before the registration of the property.

FULL TEXT OF THE ITAT JUDGMENT

The captioned appeal has been filed at the instance of the Assessee against the order of the
Commissioner of Income Tax (Appeals)–XIV, Ahmedabad [CIT(A) in short] vide appeal no.
CIT(A)-XIV/wd.7(2)/327/2012-13 dated 03.12.2013 arising in the matter of assessment order
passed under s.143(3) r.w.s. 147 of the Income Tax Act, 1961(here-in-after referred to as “the
Act”) dated 15.01.2013 relevant to Assessment Year (AY) 2007-08.

2. The grounds of appeal raised by the assessee are as under:-

1.1 The order, passed u/s.250 on 3.12.2013 for A.Y.2007-2008 by CIT(A)-XIV, Abad partly
confirming the exemption u/s,54F by Rs.4,73,936/- is wholly illegal, unlawful and against the
principles of natural justice.

2.1 The 1d. CIT(a) has grievously erred in law and or on facts in upholding the deduction
U/S.54F to the extent of Rs.4,73,936/-.

2.2 That in the facts and circumstances of the case as well as in law, the 1d. CIT(A) ought not to
have upheld the deduction u/s.54F to the extent of Rs.4,73,936/-.
3.1 The 1d. CIT(A) has failed to appreciate that the entire investment made in the purchase of
bunglow at Sahajand Palace was eligible for exemption u/s.54F and same should not have been
restircd to Rs. 11,11,000.

4.1 The 1d. CIT(A) has erred in upholding the validity of reopening of the asstt. u/s.147.

It is therefore prayed that fully exemption should be allowed u/s.54F.”

3. The only issue raised by the assessee is that the Ld. CIT(A) erred in granting exemption u/s 54
of the Act for Rs.4,73,936/- out of the total exemption claimed for Rs.11,11,000/-.

4. Briefly stated facts are that the assessee is an individual and engaged in the business of Labour
work for electric fitting. The assessee is also deriving income from other sources under the head
interest income. The assessee was the co-owner in the property bearing block no. 755-756
admeasuring about 23169 sq. Meters at Ghuma along with Shri Suresh A. Patel and Shri
Chandrakant Patel. The assessee along with two other individuals was a 1/3 rdowner in the said
property. The assessee acquired the property along with his co-owners before 1981. The assessee
along with co-owner has sold out the property for an amount of Rs. 66,00,000/- vide sale deed
dated 13-8-2006. Accordingly, the assessee was entitled to his share in the property amounting to
Rs. 22,00,000/- being 1/3rd Share of sale consideration. The assessee worked out Long Term
Capital Gain in respect of such property for Rs. 9,57,447/- which was claimed as exempt u/s
54F of the Act on account of investment in another property for an amount of Rs. 11,11,000/-
The necessary working of the capital gain stands as under:

Sale Consideration Rs.22,00,000/-

(-) Index cost of acquisition Rs.12,42,553/-
Long Term Capital Gain Rs. 9,57,447/-
(-) Exemption u/s 54F Rs.11,11,000/-
Long Term Capital Gain Nil

However, the AO during the assessment proceedings observed that the property purchased was
registered in the name of the assessee vide dated 10.10.2011 which is beyond the period
prescribed under the provision of Section 54F of the Act. Accordingly, the AO denied the
exemption claimed by the assessee u/s 54F of the Act. Thus, the AO made the addition as Long
Term Capital Gain of Rs. 9,57,447/- to the total income of the assessee.

5. Aggrieved, assessee preferred an appeal to Ld CIT(A). The assessee before the Ld. CIT(A)
submitted that he had invested in the new residential house for an amount of Rs.19,34,000/- as
detailed under:

Sr. Cheque
Name of Party Date Amount
No. No.
1. M/s. Hare Krishna Developers 148792 22.02.2006 11,000/-
2. “ 148796 20.03.2006 1,00,000/-
3 ” 166614 08.12.2006 3,00,000/-
4. “ 168451 11.02.2006 3,50,000/-
5. “ 168452 15.12.2006 3,50,000/-
6. “ 270376 29.04.2011 8,34,000/-
7. “ 270377 10.05.2011 3,50,000/-
8. “ Cash 10.05.2011 5,000/-

5.1 As per the assessee, the payment above was made before the date of execution of the
purchase deed, i.e. 10.10.2011.

5.2 The assessee further claimed that the delay in getting the property registered was due to some
litigation for getting the same settled. Thus, the delay occurred due to the situation which was
beyond the control of the assessee. Therefore, the assessee claimed that he should not be
penalized by not allowing exemption u/s 54F of the Act on account of the delay occurred due to
the unavoidable situation.

However, the Ld. CIT(A) deleted the addition in part made by the Ld. AO by observing as under:

“5. I have perused the facts of the case as enumerated by A.O. and as submitted by appellant. I
have perused the case laws relied on by A.O. as well as appellant. After careful consideration of
facts, submission and contention of both A.O. as well as of appellant, ground wise adjudication
is as follows:

The appellant’s one and only ground is against the addition of long term capital gain of
Rs.957447 denying the benefit to appellant u/s 54F of the Act.

It is observed from impugned assessment order that appellant failed to reflect the transaction of
sale of land co owned with two other person and despite the fact that appellant’s original return
of income is presently before the Hon’ble ITAT but this issue was not there. The A.O. after
receipt of credible information, recorded satisfaction and after taking statutory approval, issued
notice u/s 148 of the Act. The appellant also filed return in response to this notice u/s 148 of the
Act though beyond the time limit as granted by A.O. in the notice. The appellant reflected the
transaction of sale of land resulting into long term capital gain but claimed deduction u/s 54F of
the Act for an amount of Rs.11,11,000/- invested in a house property. Though A.O. treated this
return of income as non-est but taken computation of income from the same return of income.
The appellant filed all the details before A.O. as asked (admitted by A.O. in impugned order and
accepted the transaction of sale of land at Rs.66 lacs with 1/3 rd share of appellant at Rs.22 lacs.
The A.O. also accepted the appellant’s share for cost of acquisition (indexed) at Rs.1242553 to
workout long term capital gain at Rs.957447/-. The A.O. also not doubted about transaction of
investment of Rs.11,11,000/- in a house property but only on the fact that for the same property
the registration deed was made on 10.10.11, the time limit as stipulated under section 54F of the
Act was not adhered hence the deduction was rejected.

The appellant emphatically contended that it made investment of Rs.11,11,000/- till 15/12/2006
which was not disputed by A.O. also and evidenced through bank account but on account of civil
litigation and various statutory authorities order, the completion of construction and resultant
Building use permission was granted later hence registration was made on 10.10.11 after
payment of remaining amount. It is therefore, the appellant complied the condition of investment
for construction of flat within time stipulated and it is because of special circumstances beyond
the control of appellant that despite his clear intention followed by action of payment of fund
was not materialized in prescribed time limit.

I am inclined by the contention of the appellant that in the undisputed and special facts &
circumstances, the benefit of section 54F of the Act should not be denied to appellant. The ratio
of Hon’ble ITAT, Chennai order as relied on by appellant is squarely applicable in the case of
appellant. The appellant produced all necessary details to substantiate the circumstances beyond
his control. Hon’ble Bombay high court in the case of CIT Vs. Smt. Beena K. Jain (1974) 75
taxman 145 and Hon’ble Madhya Pradesh high court in the case of CIT Vs. Ajitsingh Khajanchi
(2007) 163 Taxman 426 held that it is the date of payment and not the registration or registered
deed which matters for the claim of deduction u/s 54F of the Act. Hon’ble Gujarat high court in
the case of Harsutrai J. Raval Vs. CIT (2002) 255 ITR 315 held that if the conditions u/s 54F of
the Act are substantially satisfied then assessee is entitled for deduction.

Hon’ble Gujarat high court full such in the case of CIT Vs. Mormasji Manchariji Vaid (2001)
250 ITR 542 categorically held that it is the date of execution of immovable property rather than
date of registration which is all important

The appellant’s case is squarely covered with Hon’ble Delhi high court decision in the case of
Balraj Vs. CIT (2002) 254 ITR 22. It was held by Hon’ble high court that-

“For the purpose of attracting the provisions of sec. 54 of the IT. Act, it is not necessary that the
assessee should become the owner of the property. Sec. 54 of the Act speaks of purchase.”

Hon’ble high court relied on supreme court judgment in the case of CIT Vs. T. N. Aravinda
Reddy (1979) 120 ITR 46 where it has been held that “The word “purchase” occurring in section
54(1) of the Act had to be given its common meaning viz. buy for a price or equivalent of price
by payment in kind or adjustment towards a debt or for other monetary consideration.” It is
therefore, following the finding as discussed above and ratio of various case taws, the appellant
is entitled for deduction u/s 54F of the Act for the investment of Rs.11,11,000/- for a residential
property. But, as per the provisions of section 54F, the deduction available u/s 54F of the Act
will be in the proportion out of long term capital gain, which the investment in new evidential
property bears with total sale consideration. The appellant’s total consideration was
undisputedly of Rs.22,00,000/- and long term capital gain is of Rs.9,57,447/-. It is therefore for
the investment of Rs.11,11,000/- the available deduction out of long term capital gain will be
Rs.4,83,511/-

[9,57,447 X 11,11,000]

[22,00,000]

It is important that except investment of Rs.11,11,000/- for a residential property, the appellant
has not deposited the balance sale consideration in any specified account as provided in section
54F of the Act. Therefore, the disallowances & addition made by A.O. of Rs.9,57,447/- is
restricted to Rs.4,73,936/-(9,57,447 -4,83,511). The A.O. is directed to delete the balance
addition of Rs.4,83,511/-. This ground is partly allowed.”

Being aggrieved by the order of the Ld. CIT(A) assessee is in appeal before us.

6. The Ld. AR before us filed a paper book running from pages 1-186 and reiterated the
submissions made before the Ld. CIT(A).

7. On the other hand, the Ld. DR vehemently supported the order of the authorities below.

8. We have heard the rival contentions and perused the materials available on record. From the
preceding discussion, we note that the assessee before the AO claimed to have invested in the
Residential property for Rs.11,11,000/- only immediately after the sale of the property.
Accordingly, the assessee claimed the exemption u/s 54F of the Act for Rs.11.11 Lacs. However,
the AO rejected the plea of the assessee on the ground that the property was not registered in the
name of the assessee within the time as prescribed under the provision of Section 54F of the Act.

However, the assessee before the Ld. CIT(A) claimed to have invested for Rs.19,34,000/- as
discussed above. Accordingly, the assessee pleaded before the Ld. CIT(A) for the exemption of
the entire amount invested in the new residential unit as discussed above. As per the assessee,
there was a delay in making the payment and getting the property registered in his name due to
the situation which was beyond his control. The Ld. CIT(A) admitted the claim of the assessee
and relaxed the provision for depositing money in the capital gain account scheme before filing
the income tax return as prescribed under the provision of Section 54F of the Act. Accordingly,
the Ld. CIT(A) allowed the relief to the assessee proportionately for the amount invested in the
property for Rs. 11.11 lacs.

The only grievance of the assessee before us is that he has invested money of Rs. 19.34 lacs
which should have been considered for exemption u/s 54F of the Act. It is a fact on record that
the assessee before the AO claimed to have invested Rs. 11.11 lacs. However, the assessee
before the Ld. CIT(A) claimed the first time to have made the payment of Rs.19.34 lacs out of
which a sum of Rs. 8,34,000/- was paid in April & May 2011, i.e. the date beyond the period of
three years but before getting the registration of the property.

From the above, it is clear that the assessee has never filed anything about the payment of Rs.
8.34 lacs before the AO. Therefore, the same needs to be verified by the AO.

9. The next issue arises whether the assessee is eligible for deduction u/s 54F of the Act for the
payment made beyond three years.

10. In this regard, we note that there was a delay on account of some dispute in the property
which prevented the assessee from investing the money within the time as specified under
section 54F of the Act. Thus, it is clear that the assessee could not comply with the provision of
Section 54F of the Act which was beyond his control. Therefore we are of the view that the
assessee is very much eligible for deduction u/s 54F of the Act for the amount which has been
invested by him beyond the prescribed period but before getting the registration of the property
provided there was sufficient reason which prevented the assessee for making in the investment
within the prescribed time.

Considering the facts & situation as discussed above, we are of the view that the delay occurred
due to the situation beyond the control of the assessee. Thus, he is eligible for deduction u/s 54F
of the Act. In this regard, we find support and guidance from the order of ITAT, Chennai in the
case of Smt. V. A. Tharabai vs. DCIT reported in (2012) 149 TTJ (Chennai) (UO) 41, wherein it
was held as under:

“A dominant factor to be seen in the instant case is that the entire consideration received by the
assessee on sale of her old property has been utilized for the purchase of the new property. The
purchase value of the property is more than the long-term capital gains taxable in the hands of
the assessee. This fact is very crucial. The conduct of the assessee unequivocally demonstrates
that the assessee was in fact proceeding to construct a residential house, based on which the
assessee had claimed exemption under section 54F. Therefore, what is the reality? The reality is
that the assessee has spent the entire consideration received on the sale of property towards the
construction of the residential house. It is true that the assessee could not construct the house.
But she has purchased the land utilizing the entire consideration received on the sale of the old
property. It means that the assessee has invested the entire consideration received on sale of the
old asset in acquiring/constructing a residential house property. In the special facts and
circumstances of the instant case, it is necessary to hold that the amount utilized by the assessee
to purchase the land was in fact utilized for acquiring/constructing a residential house. De facto
speaking, that part of the construction of the house property which was not completed within the
period of three years, is altogether a different matter. Without purchasing land, house cannot be
constructed. The first step should be the purchase of land. That was done. No step could be put
forward thereafter, for reasons already stated. Therefore, the entire amount spent by the assessee
in purchasing the land should be construed as amount invested in purchase/construction of
residential house.”

However, we note that the amount invested by the assessee is not coming out from the
submission of the assessee as made before the AO. Therefore, we direct the AO to verify the
amount invested by the assessee and allow the exemption u/s 54F of the Act for the amount
invested in the property beyond the prescribed period but before the registration of the property.
Hence, the ground of appeal of the assessee is allowed for statistical purposes.

11. In the result, the appeal of the assessee is allowed for statistical purposes.