2014 (5) TMI 516 - AT - Income Tax

Denial of claim of deduction u/s 54F of the Act Construction completed prior to sale of original asset - Held that - It is obvious from the orders of the revenue authorities that they have come to their respective conclusions mainly relying upon BPS application made by the assessee before the Municipal Authorities - the original asset was sold on 15-9-2008, the departmental authorities have concluded that the construction of new house was completed prior to the sale of original asset, On a perusal of the bank account copy, it is noticed that the amount was credited to the accounts of the assessee on 16-9-2008 - the assessee has also enclosed the electricity bill copy and municipal assessment to prove the fact that the construction of the first and second floors has started after sale of original asset. The documents were furnished before the AO as well as the CIT (A) but on perusal of the assessment order and order of the first appellate authority, there was no mention of the facts - revenue without considering the facts and materials placed before them were not justified in coming to the conclusion that the assessee has completed construction of the first and second floors prior to the sale of original asset solely relying upon the application made before the municipal authorities under BPS scheme - the CIT (A) has not given any specific finding thus, the matter is required to be remitted back to the CIT(A) for fresh adjudication Decided in favour of Assessee.

Summary

Issues Involved:
1. Whether the construction of the first and second floors was completed prior to the sale of the original asset.
2. Whether the construction of first and second floors can be considered as improvement/development of an existing house, thereby affecting the eligibility for deduction under Section 54F of the Income Tax Act.

Issue-Wise Detailed Analysis:

1. Completion of Construction Prior to Sale of Original Asset:
The Assessing Officer (AO) and the CIT (A) concluded that the construction of the first and second floors was completed before the sale of the original asset, based on the BPS application submitted by the assessee on 22-4-2008. The AO noted discrepancies in the plinth area between the approved plan and the valuer's report and found no corroborative evidence to support the claim that construction started after the sale. The assessee argued that the construction began after receiving the sale consideration of Rs.74,40,000 on 16-9-2008, supported by bank statements, electricity bills, and municipal assessments. However, these documents were not adequately considered by the revenue authorities. The Tribunal observed that the revenue authorities relied solely on the BPS application without considering other evidence, and thus remitted the matter back to the CIT (A) for a fresh examination of all facts and materials.

2. Consideration of Construction as Improvement/Development of Existing House:
The AO held that the construction of the first and second floors over an existing ground floor could not be considered as a new asset, thereby disqualifying the assessee from claiming deduction under Section 54F. Alternatively, if the floors were considered independent units, the assessee would possess more than one house, again disqualifying her from the deduction. The CIT (A) sustained this view, emphasizing that beneficial provisions should not lead to absurd situations where old constructions are claimed as new. The assessee contended that the construction should be treated as an independent unit, citing various judicial precedents. The Tribunal noted that the CIT (A) did not provide a specific finding on this issue and thus remitted the matter back for a detailed examination.

Conclusion:
The Tribunal concluded that the revenue authorities did not adequately consider the evidence provided by the assessee regarding the timing and nature of the construction. Therefore, the matter was remitted back to the CIT (A) to verify all facts and materials afresh and to provide a detailed analysis on whether the construction qualifies for deduction under Section 54F. The appeal was allowed for statistical purposes, and the order was pronounced in open court on 02.05.2014.