The Chennai Bench of Income Tax Appellate Tribunal (ITAT) held that mere delay on the part of the developer to hand over the possession of the flat would not vitiate the claim of the assessee and thus allowed the capital gain deduction under Section 54F of the Income Tax Act,1961.
The assessee Anil Kirthisimhan Wijeyanayake along with Mr. Sunil Wijeyanayake entered into Joint Development Agreement (JDA) with M/s Foundation One Infrastructure (P) Ltd. (FIPL) for construction of residential apartments on property owned by them. The owners were to get 50% of super built-up area in exchange. The assessee received 7 flats for transfer of 50% undivided share in the land.
The assessee computed Long Term Capital Gains under Section 50D of Income Tax Act and claimed exemption under Section 54 of the Income Tax Act on 2 flats out of 7 flats. The Assessing Officer (AO) disputed the valuation of the assessee and also opined that exemption under Section 54 of the Income Tax Act would not be available since the flats were handed over to the assessee only which is more than 3 years and also rejected the sale consideration claimed as per Section 50D of the Income Tax Act.
Aggrieved by the order, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) [CIT(A)] which held that the provisions of Section 50D of Income Tax Act was inserted by Finance Act 2012 w.e.f. 01.04.2013 and therefore, AO was right in rejecting the same and adopting cost of construction as the full value of consideration. Hence the assessee’s claim for deduction under Section 54 of the Income Tax Act was denied as the flats were acquired by the assessee beyond 3 years.
The assessee filed an appeal before the ITAT. R. Sivaraman appeared as counsel on behalf of the assessee and P. Sajit Kumar as Departmental Representative.
The Division Bench comprising of V.Durga Rao, Judicial Member and Manoj Kumar Aggarwal, Accountant Member observed that the assessee did not receive any consideration in cash rather the consideration was in the shape of flats only. Therefore, on the date of entering into JDA with the developer, it could be concluded that the assessee made deemed investment to acquire the flats.
Further, it was stated that mere delay on the part of the developer to hand over the possession of the flat would not vitiate the claim of the assessee since it would be beyond the control of the assessee to ensure timely acquisition of the flat.
The Tribunal held that the assessee would be eligible for deduction under Section 54F of the Income Tax Act against all the 7 flats so acquired under the agreement. Thus, the deduction under Section 54F of the Income Tax Act has fully been allowed to the assessee in AY 2009-10.
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