2006 (6) TMI 256 - AT - Income Tax

Deduction u/s 54F - Capital Gains from sale of share - purchase of residential flat - HELD THAT - We find that from the language of section 54, Legislature has provided leverage to the assessee for claiming deduction u/s 54F in the sense that assessee can buy the property first and claim deduction later on i.e., within one year or can have capital gain first and can claim deduction within two years by purchasing the residential flat. In all these three assessment years, these conditions were satisfied. Therefore, in our consideration, in respect of residential property till cost of purchase of flat is exhausted by the claim of the capital gain but remaining in the time-frame stipulated in section 54F, deduction cannot be denied. If assessee falls out of the time-limit in section 54F then probably department can have a case. The ld. CIT(A) has dismissed the appeal of the assessee by interpreting sub-section (4) by holding that assessee has not appropriated the sale consideration towards purchase of flat, but ld. CIT(A) has ignored the main provisions of section 54F. Sub-section (4) has been inserted with a view to facilitate the assessee to claim the capital gain exemption when assessee opts for purchase of flat after arising of the capital gain and deposit the sale consideration in the bank account till such appropriation. The assessee cannot be expected to appropriate the sale consideration in respect of the already purchased flat. If such interpretation of CIT(A) is accepted, it will frustrate the object of the provisions of section 54F and lead to absurdity. Therefore, we set aside the order of the CIT(A) and allow the ground of the assessee. In the result, this appeal filed by the assessee is allowed.

Summary

Issues:
1. Disallowance of deduction for Long Term Capital Gains under section 54F
2. Disallowance of interest payment for want of details

Analysis:
1. The assessee appealed against the order of CIT(A) confirming the disallowance of deduction for Long Term Capital Gains under section 54F. The assessee claimed deduction for the purchase of a residential flat, which was previously claimed in earlier assessment years. The Assessing Officer denied the deduction in the relevant assessment year, stating that the assessee cannot claim deduction for the same property multiple times. The CIT(A) upheld the decision based on sub-section (4) of section 54F, emphasizing the appropriation of sale consideration. However, the ITAT found no bar in claiming deduction for the same property if the cost of the flat is within the capital gain. The ITAT referred to the provisions of section 54F and concluded that as long as the conditions are met within the specified time-frame, the deduction cannot be denied. The ITAT set aside the CIT(A)'s order and allowed the ground of the assessee.

2. The second issue involved the disallowance of interest payment of Rs. 25,300 claimed by the assessee against rental income due to lack of evidence. The ITAT noted that the assessee submitted a confirmation of accounts reflecting the payment of interest. After reviewing the evidence, the ITAT set aside the CIT(A)'s decision and allowed this ground of the assessee.

In conclusion, the ITAT allowed the appeal filed by the assessee, overturning the disallowances made by the CIT(A) regarding the deduction for Long Term Capital Gains under section 54F and the interest payment.