The Bangalore Bench of the Income Tax Appellate Tribunal ( ITAT ) held that exemption under Section 54 of the Income Tax Act,1961 can be allowed based on the amount utilized out of the sale consideration towards construction of the property even if the construction is not complete
The assessee, Bagalur Krishnaiah Shetty Vijay Shanker, filed his Income Tax Returns for the assessment year ( AY ) 2016-17 declaring a total income of Rs.98,43,820.
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During the assessment proceedings it was noted by the assessing officer ( AO ) that the assessee sold a property for Rs. 18.7 crore, resulting in a long-term capital gain of Rs. 12.81 crore after deductions. The assessee claimed an exemption of Rs. 12.06 crore under Section 54 of the Income Tax Act, 1961 for investing in an under-construction house, and offered the long term capital gain of Rs. 74.6 lakhs to tax. A valuation report and bank statement were submitted by the assessee, showing construction costs of Rs. 6.66 crore and cash withdrawals of Rs. 4.78 crore.
The AO disallowed the exemption claimed by the assessee because the construction was not complete.
The assessee appealed before the Commissioner of Income Tax ( Appeals ) [ CIT( A ) ]. The CIT( A ) allowed the appeal filed by the assessee and held that with respect to the utilization of capital gains, the appellant had fulfilled the conditions under section 54 of the Income Tax Act,1961, and quashed the disallowance made by AO.
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Thus aggrieved by the order of CIT ( A ), the revenue appealed before the ITAT.
The counsel on behalf of the Revenue contended that since the construction of the property is not completed, the assessee cannot be provided with exemption under Section 54 of the Income Tax Statute.
The counsel on behalf of the assessee by relying on a judgment by the Karnataka High Court, contended that the CIT( A ) had rightfully allowed the claim of assessee under Section 54 of the Income Tax Act.
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The ITAT bench upheld the decision of CIT ( A ) and allowed the exemption claimed by the assessee. The ITAT bench comprising of Mr. George George K ( Vice President ) and Ms. Padmavathy S. ( Accountant Member ) dismissed the appeal filed by the revenue.
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