Capital Gain Exemption u/s 54F of I.T Act shall not be Disallowed if amounts for Purchase of Property and Construction were Paid duly within Relevant Period: ITAT [Read Order]

The Delhi bench of Income Tax Appellate Tribunal (ITAT) has recently held capital gain exemption under Section 54F of the Income Tax Act, 1961 should not be disallowed if an amount for purchase of property and construction were duly paid within the relevant period.

Sankalp Malik, appeared for the assessee and Sanjay Kumar appeared for the revenue. 

Assessee Subramanian Swaminathan,is a resident of Kuwait & a doctor by profession. The Assessee,sold a Plot of Land and earned LTCG, which was invested in the purchase and construction of a residential house and accordingly, deduction was claimed.

After being open for limited scrutiny it was observed that large deductions were claimed under Sections 54B,  54C, 54D , 54G & 54GA of Income Tax Act.

During scrutiny proceedings, in the said claim of deduction under Section 54F allowed only the indexed cost of acquisition and expense.

Aggrieved by the assessment order assesee filed an appeal before the CIT(A). But the CIT(A) disallowed the entire deduction under Section 54F Income Tax Ac and enhanced the income from capital gains to Rs. 1,73,65 ,056/-

The following were stated as the reasons for enhancing the income from capital gains

1. construction was not completed within 3 years and
2. non-deposit of the amount in CG Scheme

Aggrieved by the order of the CIT(A), assessee filed an appeal before the ITAT.

It was observed by the tribunal that amounts for purchase of property and the construction thereon, were paid duly within the relevant period, as prescribed under law and that too from the Capital Gains Account and CIT(A) admitted the fact.

Thereafter the tribunal relied upon the decision of the Pr. CIT vs. C . Gopalaswamy, determined that “where the assessee has entered into an agreement with a builder and invested the capital gain for purchase of residential unit, he is entitled to deduction under Section 54 Income Tax Act irrespective of the fact that builder has not completed the construction or has not yet handed over the flat”

Thus the two member bench of the Dr. B. R. R. Kumar, (Accountant Member)  and Yogesh Kumar US, (Judicial Member)  allowed the appeal filed by the assessee and hold that the CIT(A) erred in disallowing the claim by making factually incorrect observations that the assessee had not deposited any amount in the capital gains scheme account whereas the amounts were duly deposited in the capital gains scheme account and duly utilized from the said account only.

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