2019 (1) TMI 1454 - AT - Income Tax

Allowability of deduction u/s.54F - residential house has been constructed consisting of 6 RCC rooms on the ground floor - assessee did not deposit the said amount in capital gains account scheme - Held that - We find that there is no dispute to the fact that one capital asset was sold and thereafter, new house was constructed. That both the Revenue Authorities in their respective orders have agreed that the Inspector had visited the site and has reported that residential house has been constructed consisting of 6 RCC rooms on the ground floor. That without negating this report, Revenue Authorities have simply rejected the claim of deduction u/s.54F of the Act so far as the assessee is concerned. Neither AO nor CIT(Appeals) has conducted any specific enquiry to demonstrate that the construction of the new house was from any other source other than the net consideration received from sale of land. CIT(Appeals) denied the deduction u/s.54F simply because bills and vouchers were not produced. But the factual parameters of existence of new residential house was not denied by the CIT(Appeals). Nor he has shown the fund utilized for such construction was from other sources. In absence of these specific enquiry and not granting deduction u/s.54F to the assessee, is not permitted within the ambit of welfare legislation which is embedded in the taxing statutes. We take guidance from the judicial pronouncements in Pr. Commissioner of Income Tax Vs. C. Gopalaswamy 2016 (6) TMI 643 - KARNATAKA HIGH COURT where opined that where assessee invested money in construction of a residential house, deduction u/s.54F cannot be denied merely because construction was not complete in all respect within stipulated time . Similarly in the case of Commissioner of Income Tax Vs. K. Ramachandra Rao 2015 (4) TMI 620 - KARNATAKA HIGH COURT held where assessee invested entire sale consideration in construction of a residential house within three years from date of transfer of land, deduction u/s.54F of the Act cannot be denied just because he did not deposit the said amount in capital gains account scheme.

Summary

Issues Involved:
Delay in filing appeal, allowability of deduction u/s.54F of the Income Tax Act, 1961.

Analysis:

1. Delay in Filing Appeal:
The appeal was filed with a delay of 60 days. The Assessee provided a sworn affidavit explaining the reasons for the delay, which was deemed satisfactory by the tribunal. The delay was condoned, and the appeal was admitted for hearing.

2. Allowability of Deduction u/s.54F:
The main issue revolved around the allowability of deduction u/s.54F of the Income Tax Act. The Assessing Officer had computed long term capital gains at a higher value than the actual sale consideration, invoking section 50C of the Act. The Assessee claimed exemption u/s.54F for a new house constructed using the sale proceeds. The First Appellate Authority did not allow the deduction, citing reasons like missing bills and vouchers, despite the Inspector verifying the construction. The tribunal noted that the Revenue Authorities did not dispute the construction of the new house or the source of funds. The tribunal referred to judicial precedents where deductions were allowed under similar circumstances. The tribunal held that denying the deduction without specific inquiry into the source of construction funds was not permissible. Consequently, the appeal of the Assessee was allowed, setting aside the order of the CIT(Appeals).

Conclusion:
The tribunal partly allowed the appeal of the Assessee concerning the allowability of deduction u/s.54F of the Income Tax Act, emphasizing the importance of verifying the source of funds for construction when considering such deductions.