Exemption u/s 54F could not be denied for fraud by builder in constructing building without NOC not disclosed to the assessee
ABCAUS Case Law Citation:
ABCAUS 3101 (2019) (08) ITAT
Important case law relied upon by the parties:
Kanan Chandra Sekhar vs. ITO, 165 ITD 315
Dileep Ranjrekar, 101 taxman.com 104
Balkishan Atal vs. ACIT 104 taxman.com 432.
Seema Sabharwal vs. ITO, 193 TTJ 128
Banaria Engineering Ltd. vs. ITO
The appeal was filed by the assessee against the order passed by the CIT(A) in disallowing the exemption u/s 54 of the Income tax Act (the Act) to the assessee.
The assessee sold his House and the sale consideration was invested by the assessee in the purchase of new residential house. This new house was purchased from a builder through executing a Memorandum of understanding.
Later, the assessee learnt that No Objection Certificate (NOC) issued to the builder had been cancelled. However, writ petition filed by the builder in the Hon’ble High Court was still pending adjudication.
During the scrutiny assessment proceedings, the assessee was required to furnish the details of investment and was further required to explain as to how in the absence of purchase deed/transfer of property in question it could be established that the assessee has purchased the said property.
During discussion, the assessee stated that due to litigation, possession of property was not handed over to him. It was submitted that the Hon’ble High Court had directed the company not to sell, agree to sell or enter into agreement with regard to parties and whatsoever in manner in respect of portion of building above 40 meter.
However, the AO was not convinced by the submission of the assessee and disallowed the claim of the assessee u/s. 54F of the Act.
Feeling aggrieved by the order passed by the Assessing Officer, the assessee preferred an appeal before the ld. CIT(A).The assessee relied upon CBDT Circular Nos.471 and 672 dated 15.10.1986 and 16.12.1993 respectively. However, CIT(A) had confirmed the order passed by the Assessing Officer.
Before the Tribunal, the assessee contended that the allotment of land was not within the power and control of the assessee. The assessee with all bona fide invested the long term capital gain for purchase of residential flat and also invested huge amount. The assessee could not be made to suffer twice on account of denial of benefit of section 54 as well as non-handing over the possession pursuant to the directions of Hon’ble Karnataka High Court.
On the other hand, the Revenue contended that neither there was any agreement for purchase of residential flat by the assessee and the builder nor there was any commitment on the part of the builder to build-up the flat nor it was a case that NOC was granted.
Also, it was submitted that the assessee/buyer should be aware about his rights and should not have invested in the apartment which has no legal sanction. In the alternative, it was submitted that the MOU was neither a titled document nor sale agreement in favour of the assessee.
Exemption u/s 54F could not be denied for fraud by builder
The Tribunal observed that it was not the case of the Assessing Officer that the assessee had not booked the flat with the builder. It was also not the case of the Assessing Officer that he had not made the payment to the builder in time. It was also not the case of the Revenue that there was no stay by the High Court and the matter was not sub-judice before the High Court.
The Tribunal noted that the only reason given by the AO is that in case the writ petition is disallowed and the relief sought is declined then the assessee would not be entitled to flat.
The Tribunal opined that what is required to be seen is intention of the assessee at the time of making the investment in the building project. If there was no inhibition or embargo at the time of investment, at that time the assessee was entitled to the title of the residential unit, then the assessee is entitled to benefit of section 54F.
The Tribunal stated that the assessee could not be denied benefit of section 54F on account of delay by the builder or on account of the reason for delay in allotment/construction of the flat, which are not attributable to the assessee.
The Tribunal added that section 54F is a beneficial legislation and has been inserted with a view to promote investment of the long term capital gains in the building of residential premises. Technical reasons, or fraud or unscrupulous activities of the builder could not be made a ground for denial of benefit of section 54F.
The Tribunal opined that the assessee was entitled to benefit of section 54F. However, on account of interdiction by High Court, the possession had not been handed over to the assessee.
The Tribunal opined that no order of the court was intending to harm any person. For no fault of the assessee, the assessee could not be denied benefit of section 54F merely because the clearance of the project was pending before the Hon’ble High Court.
Accordingly, the appeal of the assessee was allowed.
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