The Income Tax Appellate Tribunal (ITAT), Chennai Bench, has recently, in an appeal filed before it, held that the provision for capital gain exemption u/s 54F is the beneficial provision, and hence that substantial compliance would entitle an assessee to claim the full deduction.
The aforesaid observation was made by the Chennai ITAT, when an appeal was preferred before it by the assessee, Mrs D. Vijayalakshmi, for Assessment Year (AY) 2015-16, as against the order of the Commissioner of Income Tax (Appeals), [CIT(A)], dated 10-09-2019, in the matter of an assessment framed by the Assessing Officer [AO], u/s.143(3) of the Income Tax Act, on 27-12- 2017.
The sole grievance of the assessee’s appeal is with regard to the computation of capital gains, the facts of the case were that during the assessment proceedings, it transpired that the assessee had sold the certain property on 23.02.2015 for Rs.283 Lacs.
Out of the advance so received against the sale of property under an unregistered sale agreement dated 15.05.2013, it was found that the assessee had purchased land and building at Peerkankaranai village, Kamaraj Nagar, for Rs.45 Lacs on 29.11.2013, and that the possession of the sold property was handed over by the assessee on 15.10.2014.
Subsequently, the assessee purchased another land and building at Peerkankaranai Village adjacent to the property purchased in 2013, on 29.04.2015 for Rs. 57.10 Lacs, on which, it was stated by the assessee to have constructed a residential building for Rs.156.80 Lacs.
Accordingly, the assessee claimed deduction u/s 54F, for an aggregate amount of Rs.269.11 Lacs, including earlier property purchased for Rs.45 Lacs, and the balance amount of Rs.13.88 Lacs was offered to tax as Long-Term Capital Gains.
However, it was held by the AO that the unregistered document dated 15.05.2013 could not be considered and that as the assessee constructed the residential house on the plot purchased on 29.04.2015, with the construction being completed on 30.09.2017, while the sale took place on 23.02.2015, the assessee should have invested unutilized gains in Capital Gains Account Scheme by the due date of filing of return of income i.e., by 31.07.2015, which was not done by him.
Accordingly, the AO formed the opinion that the deduction was to be restricted to the extent of investment made up to that date, thereby relying upon the decision of the Bombay High Court in Humayun Suleman Merchant vs CIT. Further, he added that since the property purchased on 29.11.2013 fell beyond one year from the date of sale i.e., 23.02.2015, no deduction would be available to the extent of Rs.45 Lacs and that the amount spent on the investment and construction up to 31.07.2015 in the second property purchased on 29.04.2015 aggregated to Rs.156.80 Lacs, alone would be eligible for deduction u/s 54F.
Agitated by the same, the assessee approached the CIT(A) with his appeal, who upheld the disallowance of Rs.45 Lacs, along with the restriction of deduction, on the ground that unutilized gains were not deposited in the Capital Gains Account Scheme. And it is by being aggrieved by the same, that the assessee has in further appeal come before the Chennai ITAT.
Hearing the opposing contentions of either side as submitted by Shri Anandd Babunath (CA), the AR for the assessee, and Shri D.Hema Bhupal, (JCIT), the DR on behalf of the Revenue, and perusing the materials available on record, the Chennai ITAT commented :
“It could be seen that the assessee has entered into a sale agreement dated 15.05.2013 for the sale of property for Rs.283 Lacs. The terms of the sale agreement have been honoured and the intended purchaser has paid sale consideration from time to time. The full sale consideration has been paid on 16.12.2013 whereas the sale deed has been executed on 23.02.2015. The possession is stated to be handed over on 15.10.2014. As against instalments so received, the assessee has purchased land on 29.11.2013 which falls within one year from receipt of full sale consideration as well as handing over of the possession.”
“Undisputedly the investment has been made out of part of the sale consideration. Therefore, simply because the sale deed has been executed subsequently, the deduction of Rs.45 Lacs could not be denied to the assessee. We order so.”, the ITAT further added.
So far as the investment in subsequent property is concerned, we find that the assessee has purchased adjacent land and constructed residential property on the same. The assessee made an investment in land for Rs.57.10 Lacs as well as incurred substantial construction expenditure to the extent of Rs.130.56 Lacs Only a small amount of Rs.30.56 Lacs was spent thereafter. The provisions of Sec.54F are beneficial provisions and therefore, the substantial compliance of the same by the assessee, in our considered opinion, would entitle the assessee to claim the full deduction.”, the ITAT Panel comprising of Mahavir Singh, the Vice-President, along with Manoj Kumar Aggarwal, the Accountant Member, further observed.
Thus, finally allowing the assessee’s appeal, Chennai ITAT held:
“Therefore, Ld. AO is directed to allow the remaining deduction of Rs.30.56 Lacs also. We order so.”
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