The Income Tax Appellate Tribunal (ITAT) Delhi Bench held that capital gain exemption should not be denied on residential houses constructed on small areas of land.
The assessee , Girish Mohan, filed its return by claiming capital gain exemption on Investment in new residential house. During the assessment proceedings, the Assessing Officer (AO) alleged that assessee is merely possessing a piece of land without any construction thereon and hence not entitled for deduction of Section 54F of Income Tax Act, 1961
Aggrieved by the order, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) {CIT(A)}, who partly allowed the claim of assessee. Thus, the assessee filed a second appeal before the tribunal.
During the proceedings, P. C. Yadav, the counsel for the assessee relied on the order of the coordinate bench in the case of ACIT Vs. Om Prakash Goyal submitted that “ when the land is purchased and building the constructed thereon, it is not necessary that such construction should be on the entire plot of land, meaning thereby that there is no denial of exemption on investment in a part of the land which is appurtenant to the building and on which no construction is made only because construction was made on the first plot of land, the exemption claimed in respect of investment made in adjacent plot of land cannot be declined when all the other conditions as per requirement under Section 54F of the Income Tax Act were satisfied”.
Vipul Kashyap, Counsel for Revenue, submitted that the assessee has not been able to explain the deficiencies pointed out by the AO, except filing a valuation report. Also size of constructed portion is very small and the exemption benefit cannot be extended to the land appurtenant is not tenable in law.
It was observed by the tribunal that the assessee filed all records from which it is established that the assessee purchased the plot of land and constructed a residential unit/ house for his use.
The tribunal also held that the house constructed on agricultural land or on other land does not matter, but the fact matters that the residential house is constructed.
Thus, the assessee has constructed residential buildings consisting of two rooms, kitchen, toilet having electricity and water connection and a borewell with a septic tank which was being used as residential unit.
Therefore, the bench unable to agree with the basis taken by the CIT(A) that in proportion to the size of the plot/ land the constructed portion is very small and thus, the exemption benefit under Section 54F of the Income Tax Act could not be extended to the cost of land appurtenant to the house.
After reviewing the facts and submissions of the both parties, the two member bench of M. Balaganesh(account member) and C.M. Garg,(Judicial Member) allowed the appeal filed by the assessee.
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