2019 (7) TMI 857 - AT - Income Tax

Exemption u/s 54 - not deposit the capital gain amount in capital gains account scheme before the due dated prescribed u/s 139(1) - capital gain of disallowed ₹ 46,75,657/- - residential plot was purchase for an amount of ₹ 52,65,000 Stamp duty of ₹ 2,63,250/- on which construction was made within three years - whether assessee constructed the residential house within the stipulated time ? - HELD THAT - In the present case, the assessee has purchased the residential plot from the sale proceeds of the earlier residential house. The sale proceeds were utilized for construction of residential house with the three years itself. The decision of K. RAMACHANDRA RAO 2015 (4) TMI 620 - KARNATAKA HIGH COURT is apt in the present case as the Hon ble High Court held that it is not a pre-condition to invest the money in the specified Central Govt. Scheme of the sale proceeds if the property is purchased and constructed for residential purposes. DR tried to distinguish the factual matrix but the same is not tenable as the ratio and the facts determined by the Hon ble Karnataka High Court are similar to the present assessee s case as well. Therefore, the appeal of the assessee is allowed.

Summary

Issues involved:
1. Disallowance of deduction under section 54 of the Income Tax Act.
2. Interpretation of the conditions for claiming exemption under section 54.

Detailed Analysis:
Issue 1: Disallowance of deduction under section 54 of the Income Tax Act
The appellant filed an appeal against the order passed by the CIT(A)-2, Gurgaon for Assessment Year 2012-13, challenging the confirmation of the Assessing Officer's decision. The appellant declared a total income of ?6,40,320 and claimed exemption under section 54 for capital gains from the sale of a residential house. The Assessing Officer disallowed a portion of the claimed deduction as the appellant did not deposit the unutilized part of the sale consideration in a specified bank or institution before the due date of filing the return under section 139(1) of the Act. The appellant argued that the funds used to purchase a residential plot and construct a house were from the sale proceeds of the old house, thus making them eligible for deduction under section 54. Various case laws were relied upon by the appellant to support this claim. However, both the Assessing Officer and the CIT(A) upheld the disallowance of a portion of the deduction.

Issue 2: Interpretation of the conditions for claiming exemption under section 54
During the appeal process, the appellant contended that the decision of the Hon’ble Karnataka High Court in the case of CIT vs. Shri K Ramchandra Rao supported their claim for exemption under section 54. The High Court's decision emphasized that if the assessee invests the entire sales consideration in the construction of a residential house within the stipulated time, they should not be denied exemption under section 54 on the grounds of not depositing the amount in a specified account. The High Court clarified that if the intention is to invest in the construction or purchase of the property within the prescribed period, the requirement to deposit the amount in a bank account does not apply. The Tribunal found the facts of the present case aligned with the High Court's decision, as the appellant utilized the sale proceeds for the purchase and construction of a residential house within the specified time. Therefore, the Tribunal allowed the appeal of the assessee based on the interpretation of the conditions for claiming exemption under section 54.

In conclusion, the Tribunal allowed the appeal of the assessee, highlighting the alignment of the case with the decision of the Hon’ble Karnataka High Court regarding the interpretation of conditions for claiming exemption under section 54 of the Income Tax Act.