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Smt. Lekha Reddy Mettu Vs ACIT (ITAT Hyderabad)
In the case of Smt. Lekha Reddy Mettu vs. ACIT (ITAT Hyderabad), the Tribunal addressed appeals filed against the assessment orders for the Assessment Year 2017-18. The case arose from a property transaction where the assessee, a non-resident individual, was part of a Joint Development Agreement (JDA) involving 46 owners for land development and sale. Based on the JDA, the assessee’s share of the deemed sale consideration was calculated at ₹64,57,000 under Section 50C of the Income Tax Act, 1961. The income was not declared in the tax return, leading to a reassessment by the Assessing Officer (AO) and denial of exemptions claimed under Section 54F.
The primary issue revolved around the non-fulfillment of conditions under Section 54F, which requires the construction of a residential property within three years of transfer. While the assessee argued that construction delays were caused by disputes among the developer’s partners, the Tribunal noted that the disputes arose well beyond the statutory timeline and that the assessee had not taken adequate steps to enforce her rights. Consequently, the Tribunal upheld the AO’s decision to deny the exemption and dismissed the appeals, citing the lack of compliance with statutory provisions and insufficient evidence to support the assessee’s claims.
This case highlights the critical importance of adhering to timelines and demonstrating proactive measures to claim benefits under tax provisions. The Tribunal’s decision underscores the strict interpretation of tax laws regarding exemptions.
FULL TEXT OF THE ORDER OF ITAT HYDERABAD
These two appeals filed by the respective assessee are directed against the common order dated 09.01.2024 of the learned ACIT (International Taxation)-1, Hyderabad relating to A.Y.2017-18. Since common issues are involved in both these appeals, for the sake of convenience, these were heard together and are being disposed of by this common order.
2. The common grounds raised by the assessees in ITA No.23 1 and 232/Hyd/2024 reads as under:
3. Facts of the case, in brief, are that the assessee is an individual and Non-Resident, has not filed return of income for the A.Y 2017-18. As per the immovable property transaction information disseminated by the I&CI wing for the F.Y 20 16-17 relevant A.Y 20 17-19, the Assessing Officer noted that the assessee along with 45 others have entered into DAGPA for Development and sale of immovable property all the land admeasuring acrs 4.505 in Survey No.14 of Guttala Begumpet Village, Serlingampally Mandal Rangareddy District(2 1806 Sq.Yds with approximate built up area of 2,75,00,000 sft) registered vide DAGPA document No.6418/2016 dated 31-05-2016, for a total sale consideration of Rs.43,61,20,000/- as against SRO value of 62,86,20,000/-. As per the DAGPA the owners and developer shares are 47.25% and 52.75%. As the assessee is one amongst the 46 owners the share of the assessee is 1/46th of the share of the owners. The assessee’s share in chargeable sale consideration as per section 50C of the IT Act, 1961 for computation of Long Term Capital Gain is Rs.64,57,000/- and the assessee will get the benefit of deduction of indexed cost of acquisition and construction/improvement when the details become available.
4. During the FY 20 16-17 relevant to AY 20 17-18, income chargeable to tax in the hands of assessee accrued in the form of Long Term Capital Gains to the extent of Rs.64,57,000/- but the assessee did not file return of income and he did not offer this income to tax. Therefore, income of Rs.64,57,000/- has escaped assessment in the hands of assessee for AY 20 17-18. Hence, the Assessing Officer reopened the assessment with the prior administrative approval and a notice U/s 148 of the Income Tax act, 1961 was issued to the assessee. Notices u/s 142(1) of the Income Tax act, 1961 and Show cause notice was issued to the assessee in response to which the AR of the assessee appeared before the Assessing Officer and accepted the deemed sale consideration at Rs.50,00,000/- and claimed indexed cost of acquisition of Rs.5,28,000/- and submitted that the assessee is eligible for claiming exemption u/s 54F of Income Tax Act, 1961.
5. However, the explanation of assessee was not acceptable to the Assessing Officer on the ground that the assessee was yet to receive the Villa/residential house and has not acquired legal title on such residential house/villa as on the date of JDA. Further, the assessee has not got legal title/registered the residential house/villa in her name till date while the section 54F stipulates that the assessee shall purchase house within two years or construct new house within three So, it is a violation of the section 54F of the Income Tax Act, 1961. The assessee herself admitted that the construction of villa was not completed till date and occupancy certificate was also not received. The Assessing Officer rejected the explanation offered by the assessee and completed the assessment u/s 147 r.w.s. 144C(13) of the I.T. Act and initiated penalty proceedings u/s 270A of the I.T. Act, 1961.
6. The learned Counsel for the assessee drew the attention of the Bench to the direction of the DRP which are mentioned at page 5 of the DRP in para 2.2.3.1 to 2.3.4 which is reproduced below:
7. It was the contention of the learned AR that pursuant to the direction of the DRP, the Assessing Officer disallowed exemption u/s 54F of the Act and the reasonings are given in para No.9 at page 6 of the assessment order which to the following effect:
8. The contention of the learned AR is that as per JDA agreement entered between the assessee along with others on 31.05.2016, the assessee is eligible to get one villa of 250 sq. yards within 36 months of the JDA i.e. 3 1.05.2016. It was the contention of the assessee that because of the dispute between the partners of the developer, the construction has not been completed and the possession of the property has not been handed over to the assessee. For the above said purposes, the learned AR drew our attention to the order passed by the Hon’ble High Court dated 28.7.2022 which shows for the assessee that there was a dispute between the partners of the Developer and therefore, the construction could not have completed by the Developer within the stipulated period of 36 months.
9. The learned AR further submitted that construction has not been completed within the time granted by section 54F of the I.T. Act, for no fault of the assessee, therefore, the benefit of beneficial provision should be extended to the assessee.
10. Per contra, the learned DR submitted that the JDA was dated 31.05.2016 and as per this, the construction was to be completed within 30 months upto 1.12.2018. However, it is the case of the Revenue that the construction was only completed in 2023 and no registration has taken place in the name of the assessee. It was submitted that since the construction was not completed within a period of 3 years as contemplated u/s 54F of the I.T. Act, 1961, the benefit of section 54 cannot be granted to the assessee.
11. We have heard both the parties and perused the material available on record. The important dates which are relevant for adjudication of the appeal are:
i) JDA was entered into by the assessee and others on 5.20 16
ii) The plans were approved on 17.04.20 17
iii) Construction was to be completed within 36 months e. by 3 1.05.2019.
iv) Construction was completed on Nov. 2023
v) The litigation filed by the Partners of the Developers against each other as clear from the order was 10.2021.
12. From the reading of the above said relevant dates, it is abundantly clear that the dispute among the partners of the developers arose only after 25.10.2021 which is beyond the period of 3 years from the date of transfer of the capital assets which happens pursuant to the JDA on 31.5.2016. Admittedly, there is a delay of more than 7 years in completing the construction as against the period of years u/s 54F of the I.T. Act, 1961. The explanation given by the assessee that there was dispute among the Partners is not substantiated and rather it shows that the dispute arose only in the month of October, 2021 i.e. after a lapse of 5 years. Furthermore, no evidence has been filed to prove that some steps were taken to enforce his/her right pursuant to the agreement dated 31.05.2016 by the assessee for a period of more than 7 years. No email or correspondence has been brought to our notice demonstrating that serious efforts were made by the assessee to ensure due completion of the construction within the time granted by the statute. In our view, the assessee should be careful and vigilant in enforcing his right which are missing, in the present case. In the light of the above, we do not find any reason to interfere in the findings given by the Assessing Officer/DRP and accordingly both the appeals of the assessee are dismissed.
13. In the result, appeals filed by both the assessees are dismissed.
Order pronounced in the Open Court on 29th May, 2024.
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