DHANANJAY MADHUKAR NAIK, MUMBAI V. ITO 12(3)(3), MUMBAI

ITA 2988/MUM/2022

AI Insights

The case revolves around the taxation of unutilized funds in a Capital Gains Account Scheme, where the assessee, Dhananjay Madhukar Naik, had deposited the proceeds from the sale of an inherited property. The funds were intended for the purchase of new flats from Niraj Kakad Developers Pvt. Ltd., which were not completed within the stipulated time due to the builder's default. The Assessing Officer and the CIT(A) had earlier ruled against the assessee, leading to the appeal before the Tribunal. The Tribunal considered various precedents and the specific circumstances of the case, including the ongoing legal disputes with the builder, and ruled in favor of the assessee, allowing the appeal and not taxing the unutilized funds immediately.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 123321 (ITAT-MUMBAI)
• Duration Of Justice: 8 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-08-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 24-05-2023
• Assessment Year: 2017-2018
• Appeal Filed On: 22-11-2022
• Other Referred Cases: Mr. Rajeev B. Shah vs. The Income Tax Officer, Bal Kishan Atal vs Assistant Commissioner of Income Tax, Mrs. Hilla J.B. Wadia vs Commissioner of Income tax, CIT vs. RL Sood, Smt. Shashi Varma vs. CIT, Hasmukh N. Gala vs. ITO, ACIT vs. Shri Girish L. Ragha, Satish Chandra Gupta vs. Assessing Officer, Narasimha Raju Rudra Rao vs. Asstt. CIT, Mrs. Seetha Subramanian vs. Asstt. CIT, CIT vs. Sardarmal Kothari
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Period of limitation; Time period of passing order; Revised return; Capital Gains
• Section: 54F; 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “D, MUMBAI BEFORE SHRI ABY T VARKEY, HON’BLE JUDICIAL MEMBER & SHRI S. RIFAUR RAHMAN, HON'BLE ACCOUNTANT MEMBER ITA NO. 2988/MUM/2022 (A.Y: 2017-18) Dhananjay Madhukar Naik 306, Meghdoot CHSL, Sahaji Raje Marg Koldongri, Vile Parle (W) Mumbai- 400057 PAN: ALRPN7498M v. ITO 12(3)(3) Room No. 1631, 16 th Floor Air India Building, Nariman Point Mumbai- 400021 (Appellant) (Respondent) Assessee Represented by : Shri Anil Masand Department Represented by : Shri P.D. Chougule Date of conclusion of Hearing : 25.05.2023 Date of Pronouncement : 09.08.2023 O R D E R PER S. RIFAUR RAHMAN (AM) 1. This appeal is filed by the assessee against order of Learned Commissioner of Income Tax (Appeals)-57, Mumbai [hereinafter in short “Ld.CIT(A)”] dated 26.09.2022 for the A.Y.2017-18. 2. Brief facts of the case are, assessee is an NRI and filed his return of Income on 28.02.2018 declaring total income at ₹.5,33,00,930/-. Assessee, has declared income from capital gains of ₹.4,44,28,160/- and ITA NO. 2988/MUM/2022 (A.Y: 2017-18) Dhananjay Madhukar Naik 2 income from other sources of ₹.88,82,769/- and claimed deduction under chapter VI-A of ₹.10,000/-. Subsequently, assessee revised his return of income on 19.02.2019 declaring income of ₹.88,72,770/- wherein assessee has offered for taxation only income from other sources of ₹.88,82,769/- and claimed deduction under chapter VI-A of ₹.10,000/-. 3. The case was selected for scrutiny under "CASS" for complete Scrutiny for the reason that assessee has claimed large refund out of self-assessment tax and taxable income was revised in the revised return of income. 4. Facts relating to this case are assessee held 60% share in the inherited property at Bandra, Mumbai which was sold during F.Y.2013-14 to Niraj Kakad Developers Pvt. Ltd [hereinafter in short “NKDPL”] vide sale agreement dated 25.10.2013 for a consideration of ₹.20,88,48,040/- (assessee's share). The assessee computed capital gains of ₹.19,85,09,802 (before exemption) and assessee has claimed deduction u/s. 54 of Income-tax Act, 1961 (in short “Act”) comprising of investment of ₹.1,00,00,000/- u/s. 54EC, claimed exemption u/s. 54 of the Act of ₹.11,66,84,400/- and exemption u/s. 54F of ₹.6,66,42,240/- and declared ITA NO. 2988/MUM/2022 (A.Y: 2017-18) Dhananjay Madhukar Naik 3 net capital gains of ₹.51,83,162/- during the A.Y. 2014-15 and paid taxes thereon. 5. The Assessing Officer after verifying the submissions of the assessee observed that assessee has claimed deduction u/s. 54F of ₹.6,66,42,240/- by investing in the Capital Gains Account Scheme, to be paid to builder on demand on the said transaction during the A.Y. 2014-15. Out of ₹.6,66,42,240/- invested in Capital Gain account, the assessee could only invest ₹.2,22,14,080/- at the end of three years from the date of transaction. The unutilized amount of ₹.4,44,28,160/- was initially offered to tax in the original return of income but later assessee has claimed the same to be exempt on account that the builder stopped construction work and possession of the flats was not given to the assessee as per the agreement. 6. After considering the submissions of the assessee, Assessing Officer observed that, the explanation given by the assessee is not in accordance with the Income Tax Act, 1961 and accordingly, assessee was show-caused as to why the unutilized amount should not be taxed. In response assessee has submitted as under: - ITA NO. 2988/MUM/2022 (A.Y: 2017-18) Dhananjay Madhukar Naik 4 “1. During the previous year FY 2013-14, I had sold an inherited property at Bandra to Niraj Kakad Developers Private Limited for a consideration of Rs. 20,81,27,040 as mentioned in Deed of Conveyance executed between us The new property was purchased in the same building to claim the benefit of Section 54 of the Income Tax Act, 1961, to be developed by M/s Niraj Kakad Developers Private Limited. The total cost of the investment including all the charges was Rs. 12,33,49, 104 out of which an amount of Rs 5,67,06,684 was paid at the time of booking and the balance Rs.6,66,42,240 was deposited in the capital gain savings scheme account. The amount deposited in the capital gains savings scheme account was to be paid to the builder on demand. 2. Subsequently an amount totaling to Rs. 2,22,14,080 was paid to the builder from the capital gains scheme account basis the progress in work. Before the completion of 3 years from date of sale, the builder stopped construction of the building midway and post numerous reminders also failed to give me the possession of the flats booked. Due to the abovementioned default by the builder, Rs. 4,44,28,160 is still lying unutilized in the capital gains scheme account. I have already made payments amounting to about 64% of the purchase consideration for the property purchased, to the above- mentioned builder. It will be essential to pay out the remaining amount of Rs. 4,44,28,160 as and when the builder is in the position to complete the project. 3. It is worthy of noting in the above case that the purchase agreement for the new property purchased by me for claiming exemption under Section 54 contained a clause that the property will be ready in 30 months with a grace period of 6 months. However due to unfortunate circumstances and situation beyond our control the builders having run into legal troubles is unable to deliver the project. 4. I have sent him several reminders for the possession of the property as well as requesting him to accept the balance payments. 5. However, he is no position to adhere to his promises soon. 6. A suit has also been filed by me in the High court against the builder for failing to handover possession of flats to me within the stipulated time period and for breach of the agreements committed by the builder. The said suit is pending before the High Court. Also, ITA NO. 2988/MUM/2022 (A.Y: 2017-18) Dhananjay Madhukar Naik 5 there are numerous cases pending before the Additional Metropolitan Magistrate, Bandra and High Court of Bombay against the builder, filed in various years, for non completion of projects and default in transferring of the possession to those aggrieved parties. The builder has also defaulted in loan repayments to the lender wherein, the lenders have also filed suits against him in the High Court of Bombay for recovery of their dues. The builder, as a fact, has been defaulting with his lenders as well as the customers who have booked residences or offices in the properties been constructed by him. Attached herewith is a list of pending cases against the builder in Magistrate courts and High Court, in Annexure-I 7. I have been aggrieved from the default of the builder since I have invested, in goodfaith, about 64% of the money in a property for which I do not foresee immediate possession in the near future. The demand by the department would create hardship on me to pay out the taxes on the capital gains genuinely invested by me but not paid to the builder within 3 years due to the default of the builder. The department cannot tax me on the amount that remains unutilised from the capital gain scheme account for the default on account of the builder. Similar view was taken by various courts and tribunals in the cases mentioned below. In the judgement passed by ITAT (Mumbai) in the case of Mr. Rajeev B. Shah, Vs. The Income Tax Officer, Ward -19(2) (1), ITA No.262/Mum/2015 it was held that "It is a fact that the assessee has invested this amount of Rs.18,60,000 - in purchase of residential house within the stipulated period prescribed u/s 54F of the Act. But it is not in the assessee's hand to get the flat completed or to get the flat registered in his name, because it was incomplete. The intention of the assessee is very clear that he has invested almost the entire sale consideration of land in purchase of this residential flat. It is another issue that the flat could not be completed and the matter is pending before the Hon'ble Bombay High Court seeking relief by the assessee by filing suit for direction to the Builder to complete the flat. It is impossible for the assessee to complete other formalities i.e. taking over possession for getting the flat registered in his name and this cannot be the reason for denying the claim of the assessee for deduction u/s 54of the Act. In view of the above facts of the case, we are of the view that the assessee entitled for deduction u/s. 54F of the Act, because the ITA NO. 2988/MUM/2022 (A.Y: 2017-18) Dhananjay Madhukar Naik 6 assessee has already invested sum of Rs. 18.60 lakhs in the residential property under construction within the time limit prescribed u/s. 54F of the Act. Accordingly, this issue of assessee's appeal is allowed." Reliance be also placed on the order passed by The Income Tax Appellate (Delhi) Tribunal in the case of Bal Kishan Atal v/s Assistant Commissioner of Income Tax(176 ITD 330(Delhi-Trib), where the tribunal held that: "The delay in the instant case was on account of the developer and not on account ofthe assessee. The assessee had deposited the amount in capital gain account. The balance amount could not be utilised as there was a dispute and stay by the National Disputes Redressal Commission. Accordingly, for the reasons stated hereinabove, the Commissioner (Appeals) was not justified in confirming the action of the Assessing Officer and direct the Assessing Officer to delete this addition of Rs 19 lakhs too" In the case of Commissioner of Income tax v/s Mrs. Hilla J.B. Wadia (216 ITR 376), the High Court of Bombay held that "In this connection, circular of the Central Board of Direct Taxes bearing No. 471, dated 15-10-1986 could be taken into consideration, which dealt with the investment inflats under the self-financing scheme of the Delhi Development Authority. The Board stated in the circular that when an allotment letter is issued to an allottee under this scheme on payment of the first instalment of the cost of construction, the allotment is final unless it is cancelled. The allottee, thereupon, gets title to the property on the issuance of the allotment letter and the payment of instalments is only a follow-up action and taking delivery of possession is only a formality The Board directed that such an allotment of a flat under this scheme should be treated as a case of construction for the purpose of capital gains. The instant case was on a much stronger footing because there was not merely an allotment of the flat but even almost the entire cost of construction was paid by the assessee within a period of two years The facts of the above cases are similar to that of mine. A substantial part of the consideration has already been discharged by ITA NO. 2988/MUM/2022 (A.Y: 2017-18) Dhananjay Madhukar Naik 7 me and less than 36% remains payable. The builder, despite filing a suit against him, is unable to complete the building and hand over the possession of the flats to me. The default is on part of the builder and I being FPARTMEN the aggrieved party cannot be taxed for such sum lying unutilized in the Capital Gain scheme account. As already stated, I am willing to pay out the remaining consideration as and when the builder is ready to restart the construction and demands the money as per progress of construction. 8. Further I would like to state that Courts have further held from time-to-time that beneficial provisions of law, i.e., in respect of relief, deductions, exemption, etc., should be interpreted reasonably & liberally in favour of assessee so as to achieve the legislative intent & not to suppress the same. Recently, the ITAT Chandigarh in Mrs. Seema Sabharwal v. ITO [2018] 91 taxmann.com 2 held that if assessee has already invested capital gains to purchase/construct a new residential house within stipulated period, exemption under section 54 cannot be denied to the assessee even if the amount has not been deposited by assessee in the capital gains account scheme before filing of Income-tax return as required by section 54(2). 9. It has been decided in a number of cases that for the purpose of claiming exemption u/s 54, investment of substantial amount in the new asset is sufficient compliance. It has been held by various courts that in such circumstances, the assessee is entitled to claim exemption despite the fact that the construction is not completed within 3 years. This issue was addressed by the Delhi HC in the case of CIT v. RL Sood [2000] 245 ITR727/108 Taxman 227, wherein the Hon'ble HC held that the assessee having invested substantial amount in the purchase of a new asset, thus, acquiring substantial domain over the new flat within the specified period, the assessee could be said to have complied with requirement of section 54 and merely because possession of the flat was not handed over to the assessee within the specified period, the said benefit could not be denied. 10. The legislative intent of the provisions of Section 54 should be interpreted. Adding the amount as income for the Assessment year 2017-18 would entail genuine hardships on the assessee which is not the intent of the Section 54 of the Act, the Section seeks to grant relief from capital gains to the assessee who are genuinely intending to the investing a house property. ITA NO. 2988/MUM/2022 (A.Y: 2017-18) Dhananjay Madhukar Naik 8 11. In instant case, despite having made payment for the flat, the developer failed to offer possession up till the expiry of three years from the date of sale of property by him, because of reasons beyond his control which cannot be disputed. This vital fact assumes great significance as I had taken all the steps to make the investment for the purchase of house, and also deposited Rs. 6.66 Crores in the capital gain account with bank so as to make the payments as and when demanded by the buyer. This unequivocally demonstrate that I really intended to possess the new residential house thereon. It was based on this bona fide intention assessee had claimed exemption under section 54. 12. Therefore, in my opinion no tax should be levied on the amount lying unutilized in the capital gains scheme account as that would cause genuine hardship on me.” 7. After considering the submissions of the assessee, Assessing Officer observed from the record that the assessee has sold the inherited property to NKDPL and entered an agreement for purchase of new flats from the same builder. He observed that in the arrangement entered with the same builder to acquire new flats developed by NKDPL and in one of the clause of the agreement entered with the builder wherein it was agreed between them that assessee will be indemnified himself from Capital Gain taxation liability in case the builder fails to deliver the flats in time [Para No. 22 of Page No. 14 of agreement dated 25.10.2013] 8. The Assessing Officer observed that since assessee has indemnified the tax loss as per the agreement entered with the developer clearly shows that assessee will be indemnified in the case where the flats are ITA NO. 2988/MUM/2022 (A.Y: 2017-18) Dhananjay Madhukar Naik 9 not delivered on time, if at all assessee has to claim the same from the builder as per the above agreement. Further, he acknowledged the fact that the flats were not delivered on time and assessee also filed a case against the builder on 2.8.2018 before the Hon'ble High Court in commercial suit no. 196 of 2019. Further, he observed that in the above said suit the assessee has basically stated in the facts of the case that due to the delay of the Builder the assessee is adversely affected and has to pay Capital Gains Tax and assessee has not highlighted any other reasons for delay in the above suit. Assessing Officer observed that this shows the assessee has filed the petition only to save himself from paying legitimate tax due to department. Further, he observed that assessee has filed suit against the builder mainly on the ground of capital gains and tax liability thereon and to avoid payment of such tax. The Assessing Officer distinguished the various case law relied by the assessee in his submissions and accordingly, he rejected the contentions of the assessee and proceeded to bring the unutilized portion of the capital gains to tax of ₹.4,99,81,680/-. 9. Aggrieved with the above order assessee preferred an appeal before the Ld.CIT(A) and Ld.CIT(A) after considering the detailed submissions ITA NO. 2988/MUM/2022 (A.Y: 2017-18) Dhananjay Madhukar Naik 10 interpreted the provisions of section 54 and 54F of the Act and sustained the additions made by the Assessing Officer. 10. Aggrieved with the above order, assessee is in appeal before us raising following grounds in its appeal: - “1. The return of income for assessment year 2017-18 was filed by the assessee on 28.02.2018 offering total income of Rs.5,33,10,929 and subsequently filed a revised return offering income of Rs. 88,72,770. 2. The amount deposited in the capital gains account scheme, under section 54 of the Act for exemption from capital gains on sale of property that arose in the previous year 2013-14. could not be fully utilised by the assessee due to delay on part of the builder of the invested property. 3. The assessee cannot be denied exemption under the section on account of default by the builder since the section which creates liability has to be strictly construed in favour of the taxpayer. 4. The assessee has already discharged about 64% of the liability towards the invested property. The builder has not completed construction of the property and the assessee is at no fault for the same. 5. The agreement for the invested property contained a clause for completion of construction within 30 months, with a grace period of 6 months. The builder post numerous reminders failed to complete construction and transfer possession of property. The contention of the learned assessing officer that the assessee had, while entering into agreement with NKDPL for purchase of flats, already indemnified himself from capital gains liability in case the builder fails to deliver the flats in time is incorrect. 6. The learned CIT (Appeals) has further failed to appreciate the extra ordinary circumstances in the below case due to which the assessee was not able to utilise the funds lying in the Capital Gains Savings Scheme account but choose to confirm the order of the ITA NO. 2988/MUM/2022 (A.Y: 2017-18) Dhananjay Madhukar Naik 11 assessing officer on the assumption that the intent of the legislature is clear in the matter. Our contention is that Section 54F is an exemption section for the benefit of the assessee and should be construed accordingly. We further want to submit that the funds are till date lying in the capital gains savings scheme account which reflects the intention of the assessee to reinvest the capital gain amount in property which is the crux of Section 54F, to promote the investment of capital gains in property. 7. The assessee therefore prefers an appeal before the Hon'ble Tribunal against the said order of the learned commissioner of Income Tax (Appeals)” 11. At the time of hearing, Ld. AR of the assessee brought to our notice relevant facts relating to the case and filed its written submissions vide letter dated 03.03.2023, for the sake of clarity, the same are reproduced below: - “5.1 It may be noted that the assessee had already made payments amounting to about 60% of the cost of the property purchased, to the above-mentioned builder 5.2. A substantial part of the consideration has already been discharged by him and less than 40% remained payable. In the instant case the assessee had purchased a property worth Rs12,52,02,424 and paid Rs 7,52,20,744 to the builder which even in absolute terms is a huge amount and the balance Rs. 4,99,81,680 is also lying in the capital gain savings scheme account which has not been utilised for any other purpose by the Assessee. The Assessee has complied with all the requirements of the Act to be able to benefit from the beneficial provisions of the Act 5.3. Based on the above, the intent and the action of the assessee were very clear that he intended to invest in a new property as provided by the Income Tax Act, 1961. It is the default on part of the Builder in not being able to complete the project in time and not handing over the possession of the property, which was beyond the control of the Assessee. ITA NO. 2988/MUM/2022 (A.Y: 2017-18) Dhananjay Madhukar Naik 12 5.4. The Assessee also used legal remedy by filing a suit in the Hon'ble Bombay High Court against the builder. A copy of the same is attached as Annexure 5. Despite the action, the Builder was unable to complete the building and hand over the possession of the flats to the assessee. The default is on part of the builder and the assessee, being the aggrieved party, cannot be taxed for such sum lying unutilized in the Capital Gain scheme account. As already stated, the assessee is willing to pay out the remaining consideration as and when the builder is ready to restart the construction and demands the money as per progress of construction. 5.5. The Learned Assessing Officer failed to appreciate the legislative intent of Section 54 of the Income Tax Act, 1961. 5.6. A ground taken by the Learned Assessing Officer in his Order is that the suit filed by the Assessee against the Builder deals with the reimbursement of the Capital Gains Tax if demanded against the Assessee by the Department. 5.7. What the Learned Assessing Officer failed to appreciate in making such observation is that the amount of Capital gains represents a certain amount but the broader picture is that the Assessee had already paid approximately 60% of the total consideration for the new acquisition. Would such a huge sum be ignored by the Assessee in merely trying to get the capital gains tax reimbursed? Would the Assessee have no interest in acquiring the property for which he had paid such a huge amount? A clause in the Agreement stating that in case of any demand against the Assessee, the Builder would be liable to reimburse the same. It does not imply that in the event the Builder would reimburse the amount, the Assessee would accept the delay in handing over the property. As stated earlier, the Assessee had sentiments attached to the Property as it belonged to his ancestors and was keen to obtain possession of the said property In fact, due to the possession not being granted by the Builder, the assessee and his family do not have any property to stay on their visit to India. The assessee had sold their entire ancestral property as there was no place to store 6. Commissioner of Income Tax (Appeals): 6.1. The learned Commissioner of Income Tax (Appeals) upheld the Order of the Assessing Officer 7. CASES PRECEDENT 7.1. The facts similar to the above case have been considered by various Hon'ble High Courts and Benches of the Hon'ble Income Tax ITA NO. 2988/MUM/2022 (A.Y: 2017-18) Dhananjay Madhukar Naik 13 Appellate Tribunal wherein a lenient view has been taken and have held that the object of the section is to promote housing and if assessee has invested the substantial part of the capital gain derived from transfer of the residential house in purchase or construction of another residential house within prescribed time but possession could not be received or construction could not be completed within the said prescribed time, the deduction u/s. 54 or 54F should not be denied. 7.2. In the case of CIT v. Mrs. Shakuntala Devi [2016] 389 ITR 366/75 taxmann.com 222 (Karn.) (Refer Annexure 6). It was held that the date of agreement to purchase should be taken as the date of purchase of the new property. As such if assessee has entered into the agreement to purchase and invested the capital gain, it is immaterial that part of the consideration is yet to be paid or registration has not been completed. Deduction u/s. 54 should be allowed. 7.3. In the case of Pr. CIT v. C. Gopalswamy [2016] 384 ITR 307/[2017] 81 taxmann.com 78 (Karn) (Placed at PB Page No. 168- 172) it was held that where the assessee has entered into an agreement with a builder and invested the capital gain for purchase of a residential unit, he is entitled to deduction u/s. 54 irrespective of the fact that builder has not completed the construction or has not yet handed over the flat. 7.4. In the case of CIT v. R.L. Sood [2000] 245 ITR 727/108 Taxman 227 (Delhi) (Placed at PB Page No. 173-175) it has been held that since substantial amount of the consideration was paid within the time, the deduction u/s. 54 will be available though the possession and registration was made later. 7.5. In the case of Smt. Shashi Varma v. CIT [1997] 224 ITR 106 (MP) (Placed at PB Page No. 176-177) it was held that section 54 of the Act only says that within two years, the assessee should have constructed the house but that does not mean that the construction of house should necessarily be complete within two years. What it means is that the construction of house should be completed as far as possible within two years. In the modern days, it is not easy to construct a house within the time-limit of two years and under the Government schemes, it takes years and years. Therefore, confining to two years' period for construction and handing over possession thereof is impossible and unworkable under section 54 of the Act. If ITA NO. 2988/MUM/2022 (A.Y: 2017-18) Dhananjay Madhukar Naik 14 substantial investment is made in the construction of house, then it should be deemed that sufficient steps have been taken and this satisfies the requirements of section 54. 7.6. In the case of Hasmukh N. Gala v. ITO [2017] 83 taxmann.com 49 Mumbai Tribunal (Placed at PB Page No. 178-182) it was held that completion of the construction or possession of the residential house is not material if assessee has invested the substantial part of the money for acquisition or construction of residential house. In such a case deduction u/s. 54 or 54F cannot be denied. 7.7. Similar view has been expressed in the case of ACIT v. Shri Girish L. Ragha IT Appeal No 116/PNJ/2014. (Placed at PB Page No. 183-196) 7.8 In the judgment passed by Hon'ble Income Tax Appellate Tribunal (Mumbai) 7.8. in the case of Mr. Rajeev B. Shah, V's. The Income Tax Officer. Ward -19(2) (1), ITA No. 262/Mum 2015 (Placed at PB Page No. 197-199) it was held that: "It is a fact that the assessee has invested this amount of ₹.18,60,000 /- in purchase of residential house within the stipulated period prescribed u/s 54F of the Act But it is not in the assessee's hand to get the flat completed or to get the flat registered in his name, because it was incomplete The intention of the assessee is very clear that he has invested almost the entire sale consideration of land in purchase of this residential flat It is another issue that the flat could not be completed and the matter is pending before the Hon'ble Bombay High Court seeking relief by the assessee by filing suit for direction to the Builder to complete the flat. It is impossible for the assessee to complete other formalities i.e. taking over possession for getting the flat registered in his name and this cannot be the reason for denying the claim of the assessee for deduction u/s 54 of the Act. In view of the above facts of the case, we are of the view that the assessee is entitled for deduction u/s 54F of the Act, because the assessee has already invested a sum of Rs. 18.60 lakhs in the residential property under construction within the time limit prescribed u/s. 54F of the Act. Accordingly, this issue of assessee's appeal is allowed". ITA NO. 2988/MUM/2022 (A.Y: 2017-18) Dhananjay Madhukar Naik 15 7.9. Reliance be also placed on the order passed by The Income Tax Appellate (Delhi) Tribunal in the case of Bal Kishan Atal vs Assistant Commissioner of Income Tax (176 ITD 330(Delhi-Trib), (Placed at PB Page No. 200-208) where the tribunal held that "The delay in the instant case was on account of the developer and not on account of the assessee The assessee had deposited the amount in capital gain account. The balance amount could not be utilised as there was a dispute and stay by the National Disputes Redressal Commission Accordingly, for the reasons stated hereinabove, the Commissioner (Appeals) was not justified in confirming the action of the Assessing Officer and direct the Assessing Officer to delete this addition of Rs 19 lakhs too.” 7.10. In the case of Commissioner of Income tax vs Mrs. Hilla J.B. Wadia (216 ITR 376), (Placed at PB Page No. 209-211) the High Court of Bombay held that "In this connection, circular of the Central Board of Direct Taxes bearing No 471, dated 15-10-1986 could be taken into consideration, which dealt with the investment in flats under the self-financing scheme of the Delhi Development Authority. The Board stated in the circular that when an allotment letter is issued to an allotted under this scheme on payment of the first installment of the cost of construction, the allotment is final unless it is cancelled. The allotted, thereupon, gets title to the property on the issuance of the allotment letter and the payment of installments is only a follow-up action and taking delivery of possession is only a formality. The Board directed that such an allotment of a flat under this scheme should be treated as a case of construction for the purpose of capital gains. The instant case was on a much stronger footing because there was not merely an allotment of the flat but even almost the entire cost of construction was paid by the assessee within a period of two years." The facts of the above cases are similar to that of the assessee 7.11. It is held in various judgments examined by the tribunal and courts that the beneficial provisions should be interpreted taking a lenient view. 7.12 In the case of CIT v. Sardarmal Kothari [2008] 302 ITR 286 (Mad.) (Placed at PB Page No. 212-214) the Madras High court held that Section 54F of Income tax Act is a beneficial provision for promoting the construction of residential house and requires to be construed liberally for achieving that purpose. The intention of the Legislature was to encourage investments in the acquisition of a ITA NO. 2988/MUM/2022 (A.Y: 2017-18) Dhananjay Madhukar Naik 16 residential house and completion of construction or occupation is not the requirement of law. The words used in the section are 'purchased' or 'constructed'. The condition precedent for claiming benefit u/s. 54F is that the capital gain should be parted by the assessee and invested either in purchasing a residential house or in constructing a residential house. Merely because the sale deed had not been executed or that construction is not complete, and it is not in a fit condition to be occupied does not disentitle the assessee to claim section 54F relief. 7.13 In the case of Satish Chandra Gupta v. Assessing Officer (1995) 54 ITD 508 (ITAT, Delhi Bench) (Placed at PB Page No. 215- 228) where the assessee had purchased a site and could not complete the construction of the house within the prescribed period of three years and the house was constructed and completed subsequently, the Delhi Bench granted relief on the ground that the delay had occurred on account of reasons beyond the control of the assessee. 7.14. In the case of Narasimha Raju Rudra Rao v. Asstt. CIT [2013] 35 taxmann.com 90/143 ITD 586 (Hyderabad - Tribunal) (Placed at PB Page No. 229-233) the ITAT held as under: Provision contained under section 54F being a beneficial provision has to be construed liberally In various judicial precedents it has been held that the condition precedent for claiming benefit under section 54F is only that the capital gain realized from the sale of capital asset should be parted by the assessee and invested either in purchasing a residential house or in constructing a residential house. If the assessee has invested the money in construction of residential house, merely because the construction was not complete in all respects and it was not in a fit condition to be occupied within the period stipulated, that would not disentitle the assessee from claiming the benefit under section 54F 7.15 Once the assessee demonstrates that the consideration received on transfer has been invested either in purchasing a residential house or in constructing a residential house, even though the transactions are not complete in all respects and as required under the law, that would not disentitle the assessee from availing benefit under section 54F. 7.16 In the case of Mrs. Seetha Subramanian v. Asstt. CIT [1996] 59 ITD 94 (Mad.- Trib.) (Placed at PB Page No. 234-236) it was held ITA NO. 2988/MUM/2022 (A.Y: 2017-18) Dhananjay Madhukar Naik 17 that the intention of the Legislature was to invest in the acquisition of a residential house and completion of construction or occupation is not required. In order to get the benefit under section 54F, the assessee need not complete the construction of the house and occupy the same. Similar views have been expressed in the under mentioned cases also: Asstt. CIT v. M. Raghuraman [2018] 91 taxmann.com 11/169 ITD 315 (Chennai Trib.), Smt. Babitha Kemparaje Urs v. CIT [2017] 86 taxmann.com 43/167 ITD 125 (Bangalore Trib) Bhauna Cuceria v. ITO [2017] 82 taxmann.com 306/165 ITD 124 (Chandigarh Trib), Kannan Chandrasekar u. ITO [2017] 82 taxmann.com 284/165 ITD 223 (Chennai - Trib.) (Placed at PB Page No. 237-267).” 12. On the other hand, Ld. DR relied on the orders of the lower authorities. 13. Considered the rival submissions and material placed on record, we observe from the record that assessee has sold the inherited property and to the extent of his share i.e., 60% of the sale consideration and assessee also entered an agreement to purchase new flats from the same project from the same builder for a consideration of ₹.12,52,02,424/- and an amount of ₹.5,85,60,184/- was paid before the date of agreement and the balance amount of ₹.6,66,42,240/- was deposited in the capital gains account scheme, out of the above amount assessee has paid further, amount of ₹.1,66,60,560/- to the builder on various dates and at the end of the three years assessee has paid total amount of ₹.7,52,20,744/- for the new property [60% of the purchase consideration]. ITA NO. 2988/MUM/2022 (A.Y: 2017-18) Dhananjay Madhukar Naik 18 14. We observe that the balance amount in the bank account under capital gains account scheme was unutilized by the assessee due to the fact that the builder has stopped construction midway. Aggrieved with, the assessee has filed a suit in the Hon'ble High Court as of now it is fact on record that the assessee was not able to utilize the funds deposited in the capital gains account scheme due to the fact that the builder could not proceed with completion of the project. It is also fact that assessee has entered into an agreement with the builder with the indemnity clause in case builder fails to complete the project in time. It is also fact that assessee has filed the suit before Hon'ble High Court with the main ground for objections is about the capital gains liability. However, we observe that Assessing Officer interpreted the indemnify clause entered by the assessee in the purchase agreement that assessee has got the compensation or he may get the compensation without there being any concrete evidences on record or he is aware of the fact that the case is still pending before Hon'ble High Court. He is also aware of the fact that the issue is still unresolved and there are no evidences on record to show that assessee has already indemnified with the tax liability. Therefore, in our considered view it is fact on record that the assessee cannot utilize the funds deposited in the bank account under capital gains account ITA NO. 2988/MUM/2022 (A.Y: 2017-18) Dhananjay Madhukar Naik 19 scheme, it shows that it is impossible of performance and the funds is still available in the above said account unutilized. 15. The courts have held that where the assessee has entered into an agreement with a builder and invested the capital gain for purchase of a residential unit, he is entitled to deduction u/s. 54 irrespective of the fact that builder has not completed the construction or has not yet handed over the flat [Pr. CIT v. C. Gopalswamy (supra)]. 16. Similarly, in the present case assessee has no doubt claimed the deduction u/s. 54F and partly utilized the fund kept in the bank account under capital gains account scheme. However, balance was not utilized by the assessee due to the fact that the builder stopped construction. It is a situation where assessee was not able to utilize the same under the above said circumstances, it is not proper to presume that assessee will get the indemnity from the builder and also it is fact that the case is still pending before Hon'ble High Court. Therefore, in our considered view in the situation of impossibility of performance, the period for utilization in the special circumstances like the present case has to be extended till the performance is possible. It is fact on record that the funds are still in the bank account unutilized and the case is also pending before Hon'ble High ITA NO. 2988/MUM/2022 (A.Y: 2017-18) Dhananjay Madhukar Naik 20 Court and till the case the decided or the issue is resolved by the Hon'ble High Court the assessee is not in a position to utilize the funds. Therefore, the limitation period has to be extended till it is resolved. In case assessee is not able to get the indemnity from the builder, the assessee cannot be forced to pay the tax and further the Assessing Officer should not allow the assessee to utilize the funds till the issue is resolved in case assessee withdraws or utilizes the funds for some other purposes then the Assessing Officer may proceed to tax the same the day assessee utilizes the funds for some other purposes, till such time assessee cannot be forced to declare the same as income immediately after the expiry of the limitation period. The question is how long the limitation period to be extended. From the record, it is not clear when the builder stopped the construction. In case, he has stopped the construction one year prior to the date of completion, then the assessee should be allowed to utilize the same from the date of the Hon'ble High Court order for a period of one year. Unless and until, the issue is resolved, the assessee cannot be compelled to treat the unutilized portion of the funds lying the bank account (Capital Gain Account scheme) as taxable. Therefore, in the given case we are inclined to decide the issue in favour of the assessee since the assessee is not in a positon to perform and utilize the funds kept in the ITA NO. 2988/MUM/2022 (A.Y: 2017-18) Dhananjay Madhukar Naik 21 bank account under capital gains account scheme. Accordingly, the appeal filed by the assessee is allowed for current Assessment Year. 17. In the result, appeal filed by the assessee is allowed. Order pronounced in the open court on 09 th August, 2023 Sd/- Sd/- (ABY T. VARKEY) (S. RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai / Dated 09/08/2023 Giridhar, Sr.PS Copy of the Order forwarded to: 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. //True Copy// BY ORDER (Asstt. Registrar) ITAT, Mum