2019 (6) TMI 776 - AT - Income Tax

Deduction u/s. 54F - claim rejected in respect of the additional floors constructed - addition as capital gains income - HELD THAT - As per the provisions of section 54F, either the new asset is purchased or constructed within the time limit specified. Observation of CIT(A) cost of purchase and cost of construction of additional floors both cannot be considered for the purpose of allowing deduction u/s. 54F is not valid in the light of this judgment BB. SARKAR VERSUS COMMISSIONER OF INCOME-TAX, WEST BENGAL IV 1981 (5) TMI 21 - CALCUTTA HIGH COURT . Regarding the delay in starting of the construction of 2nd and 3rd floors, it is seen that such delay is explained by giving proper reasons by saying that the assessee was having health problem of himself and apart from that, both of his daughters as noted above had some problems. There is one more objection of CIT(A) that if this is allowed then the purchase cost of new asset can be indefinitely increased through extension / additions to the new asset - addition to the new asset can only be made during the prescribed period and not after that and this is not the case of the department that the claim of the assessee is for an extension outside the permitted time limit - none of the objections of CIT(A) is valid and hence, hold that the claim of the assessee for deduction u/s. 54F in respect of the amount incurred by the assessee for construction of 2nd and 3rd floors should also be allowed. In the present case, new house was purchased and the construction of additional floors was on such new house purchased by the assessee and this new house building purchased by the assessee has been accepted as eligible for deduction u/s. 54F. Hence in my considered opinion, this Tribunal order in 2009 (5) TMI 563 - ITAT MADRAS-C is not applicable in the facts of present case - Decided in favour of assessee

Issues Involved:

1. Whether the Commissioner of Income Tax (Appeals) [CIT(A)] erred in affirming the Assessing Officer's (AO) rejection of the deduction claim under Section 54F for additional floors constructed.
2. Whether the additional floors constructed constitute separate residential units or part of the same unit.
3. The relevance of the timing of the construction of additional floors in relation to the purchase of the new residential house.
4. The applicability of the judgment in the case of ACIT vs. T.N. Gopal to the current case.

Issue-Wise Detailed Analysis:

1. Rejection of Deduction Claim under Section 54F:

The assessee sold an industrial shed and claimed a deduction under Section 54F of the Income Tax Act for the entire capital gain, which included the cost of purchasing a new residential house and the construction of additional floors. The AO allowed a proportionate deduction but rejected the claim for the cost of constructing the 2nd and 3rd floors. The CIT(A) affirmed this rejection, leading to the current appeal.

2. Separate Residential Units or Part of the Same Unit:

The CIT(A) held that the additional floors constituted separate residences and not part of the same residential unit. The assessee argued that the entire house is under one survey number and should be considered a single unit. The Tribunal found that the CIT(A)'s objection was not valid, referencing the judgment of the Hon'ble Calcutta High Court in B.B. Sarkar vs. CIT, which held that adding a floor to a new house or renovating it does not create two separate houses.

3. Timing of Construction:

The CIT(A) noted that the construction of the additional floors commenced a year after the purchase of the new house, suggesting that if they were part of the same unit, construction should have been simultaneous. The assessee explained the delay due to personal reasons, including health issues and family matters. The Tribunal accepted these explanations, stating that the delay should not be fatal to the claim, provided the construction was within the prescribed period.

4. Applicability of ACIT vs. T.N. Gopal:

The CIT(A) relied on the decision in ACIT vs. T.N. Gopal, where the exemption under Section 54F was denied for constructing an additional floor on an existing house. However, the Tribunal distinguished this case, noting that the current case involved the purchase of a new house and the construction of additional floors on it, which is different from merely adding a floor to an existing property.

Conclusion:

The Tribunal concluded that the objections raised by the CIT(A) were not valid. It held that the deduction under Section 54F should include the costs incurred for constructing the 2nd and 3rd floors, as these were part of the new house purchased by the assessee. The appeal filed by the assessee was allowed, and the deduction under Section 54F was granted for the entire claimed amount, including the construction costs of the additional floors.

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