Mutual Fund withdrawals invested in Villa and Bank eligible for S. 54F Deduction: ITAT [Read Order]

Property Acquired - Punjab & Haryana HC - Taxscan

The Bengaluru bench of ITAT in ACIT v. Sunil Bandacharya Joshi held that the assessee is entitled to get income tax deduction on the mutual fund withdrawals invested in Villas and Bank under section 54F of the Income Tax Act.

In the instant case, assessee had filed return of total income declaring total income inclusive of long-term capital gains. During the A.Y the assessee had sold a residential site and out of the sale proceeds, invested certain amounts in mutual funds. After withdrawing the amount deposited in mutual funds, the assessee invested the money for construction of villa. In addition to that, he invested certain amount with Canara bank. He claimed exemption under Section 54F of IT Act 1961 in the return of income as he had declared long-term capital gains. While scrutinizing assessee’s claims, the A.O opined that since he has deviated and diverted the sale proceeds of capital assets by investing in mutual funds and A.O held that assessee is not entitled to claim the exemption. The CIT(A) on appeal, allowed exemption for investment made in villa. The revenue appealed before ITAT against the order of CIT(A).

The revenue’s case before the ITAT was that assessee is not entitled to get the benefit of Section 54F as the money was not directly invested by the assessee in purchasing the property and it was firstly in the mutual funds and only thereafter in the property. After hearing the contentions of both the parties, the ITAT held that in it’s view the deposit of money by the assessee in mutual fund prior to purchase of house will not make any difference if the assessee had purchased the residential house within time frame provided in the act.

With regard to another ground in the appeal, the assessee had claimed another amount spent for the construction work in the villa and payment made to fixtures. The CIT(A)had disallowed that claim made by the assessee. The ITAT relied on decision of Ahmedabad bench of the tribunal in Rajat B Mehta v. ITO and held that assessee is eligible to claim exemption for the amount spent in fixtures. ITAT added that in terms of Section 54F the assessee is entitled for proportionate exemption of the costs of original assets and costs of new assets. IT directed the A.O.to recompute the capital gains exemption.

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