The Kolkata bench of Income Tax Appellate Tribunal (ITAT) reversed the decision of lower appellate authority in restricting the deduction under Section 54 of Income Tax Act regarding investment made in construction of new residential property and directed to grant the assessee the benefit of section 54 within one year before the date of sale of the old asset.
Here, the assessee an individual earning income from salary, long-term and short-term capital gain on sale of shares, house property income, dividend income and income from other sources.
During the assessment proceedings, AO found that assessee sold a property, earned long-term capital gain and claimed deduction under section 54 benefit for investment in construction of the new residential property.
Assessing Officer deputed the departmental inspector to inquire about the fact of the situation and held that assessee admitted his mistake that he failed to make the investment in construction of house property and stated that he would pay the full tax thereon with interest.
Assessee failed to invest in the construction of house property within the stipulated time and accordingly AO made addition and the same preferred an appeal before CIT (A) who restricted the said deduction.
Aggrieved with the aforesaid decision Assessee came to this tribunal and the bench including judicial member Aby T Varkey and accountant member A L Saini observed the decision of CIT (A) that deduction cannot be allowed for the construction of the new residential house made before the date of transfer of the old asset.
The bench, however, stated that the decision of CIT (A) doesn’t create any logic that they are not entitled to the deduction since the property constructed one year before the sale of the old asset. Accordingly, the bench held that entire claim of the assessee for deduction u/s. 54 of the Act needs to be allowed by considering the decision of Karnataka High court in CIT Vs. J. R. Subramaniam Bhat.
“Since it does not stand to logic that an assessee who starts constructing a new residential house within one year before the sale of the old asset cannot get the benefit of deduction u/s. 54 of the Act however, an assessee who purchases a new residential property a year before sale of property is allowed deduction u/s. 54 of the Act is illogical. The purpose of giving deduction u/s. 54 of the Act is to encourage the assessee to invest in residential property whether it is purchase or construction of residential house. Therefore, the action/interpretation of the Ld. CIT(A) to deny the claim of the assessee for the investment made by the assessee for construction of residential house property within one year before the date of sale of the old asset cannot be countenanced,” the Tribunal said.
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