2010 (7) TMI 806 - AT - Income Tax

Capital gain sale of agriculture land - assessee had claimed deduction under s. 54F of the IT Act - assessee had claimed to have purchased the residential plot construction was in progress and was not complete and in view thereof the benefit of exemption claimed under s. 54F of the Act was rejected by the authorities below Held that - Where the assessee had invested the consideration received on sale of original asset in the purchase of the plot of land and started construction though not completed the assessee had complied with the provisions of s. 54F of the Act and hence was entitled to the benefit of exemption claimed - AO directed to allow the claim of the assessee in respect of the benefit of exemption claimed under s. 54F of the Act in favor of assessee

Summary

Issues Involved:
- Appeal against order of CIT(A) regarding addition made by AO
- Consideration of documentary evidence, judgments, and Departmental circulars by CIT(A)
- Claim of deduction under section 54F of the IT Act
- Interpretation of the term "constructed" in section 54F(1) of the Act
- Completion of construction within the specified period under section 54F
- Comparison of provisions of section 54 and section 54F of the Act
- Application of judgments in similar cases to the present scenario
- Requirement of completion of construction for claiming exemption under section 54F
- Investment of sale consideration in purchase of plot and construction progress
- Compliance with provisions of section 54F for claiming exemption

Analysis:
The appeal before the Appellate Tribunal ITAT Chandigarh involved a challenge against the order of CIT(A) concerning the addition made by the Assessing Officer (AO) under section 143(3) of the IT Act for the assessment year 2007-08. The assessee claimed deduction under section 54F of the Act after selling agricultural land and investing in a residential plot. The AO denied the exemption as the construction of the house was not completed within three years of the sale. The CIT(A) upheld the AO's decision, emphasizing the term "constructed" in section 54F(1) and distinguishing previous judgments cited by the assessee.

The Tribunal considered the provisions of section 54F, which require either purchase or construction of a residential house within specified periods to claim exemption. Referring to a judgment in a similar case, the Tribunal highlighted that the emphasis is on the investment of capital gains in construction. It was noted that completion of construction within the stipulated period is not mandatory for claiming the exemption under section 54F. The Tribunal also compared the provisions of section 54 and section 54F, noting that the latter applies to assets other than residential houses.

Relying on precedents, including a case where deduction was allowed despite incomplete construction, the Tribunal found merit in the assessee's claim. The Tribunal concluded that investing the sale consideration in the purchase of the plot and initiating construction, even if incomplete, fulfilled the requirements of section 54F. As a result, the Tribunal set aside the CIT(A)'s order and directed the AO to allow the exemption claimed under section 54F. Consequently, the grounds of appeal raised by the assessee were allowed, and the appeal was granted in favor of the assessee.