2020 (1) TMI 254 - AT - Income Tax

Denying benefit of section 54 - AO did not allow exemption to the assessee on the ground that residential house was not constructed within three years of sale of house property and even at the end of the stipulated period of three years the house was incomplete - HELD THAT - What is required under the section is that the assessee should take steps to make investment in a residential house. Thus emphasis is on the utilisation or investment of capital gain in construction of residential house. Claim of the assessee is that he had invested full sale consideration and over and above that some more money and total investment is at 64.74 lakhs. Hon ble High Court of Madhya Pradesh in the case of Smt. Shashi Varma 1996 (3) TMI 65 - MADHYA PRADESH HIGH COURT has held that while allowing exemption u/s 54 of the Act investment for acquisition of flat under the Scheme of DDA where first instalment was paid was much more than the capital gains deduction is to be allowed as section 54 does not require that the construction of new house should necessarily be completed within two years where substantial investment is made in construction of house. Requirement of section 54 of the Act is for the assessee to have either purchased a residential house being a new asset within the stipulated period or construct a residential house within a period of three years from the date of transfer. The section does not prescribe the completion of construction of residential house and the thrust is on the investment of net consideration received on sale of original asset and start of construction of a new residential house. It is clear that for the Assessment Year in question all that is required for the assessee to avail exemption contained in the section is to utilise the amount of capital gain for purchase and acquisition of new asset. Since the assessee has claimed that he has invested 64, 74, 946/- which is higher than the amount of capital gain computed by the Assessing Officer the assessee is very much eligible for claim of exemption u/s 54 of the Act. Since no documentary evidences have been furnished and only a claim has been made we deem it fit to restore the issue to the file of the Assessing Officer. The assessee is directed to demonstrate that he has already invested 64, 74, 946/- towards construction of house and the Assessing Officer is directed to examine the documentary evidences and if found correct allow benefit of section 54 - Decided in favour of assessee for statistical purposes.

Summary

Issues:
Claim of benefit under section 54 of the Income Tax Act, 1961 for Assessment Year 2013-14.

Analysis:
1. The assessee filed the return of income declaring total income of ?8.90 lakhs, which was selected for scrutiny assessment. The Assessing Officer noted discrepancies in the computation of capital gains from the sale of property.
2. The assessee explained the details of the property sale, cost of acquisition, and cost of construction. However, the Assessing Officer sought further evidence to substantiate the claimed expenses.
3. Due to the lack of satisfactory evidence, the Assessing Officer calculated the capital gains based on the minimum cost of construction as per government rates, resulting in a higher capital gain amount.
4. The Assessing Officer also questioned the claim of exemption under section 54 of the Act, as the construction on the new property was not completed within three years from the sale of the original property.
5. The Assessing Officer denied the exemption under section 54, leading to an addition in the long-term capital gain amount.
6. The assessee appealed to the CIT(A) but was unsuccessful, as the claim was dismissed due to insufficient documentary evidence.
7. During the ITAT hearing, the assessee argued that the total investment in construction was higher than the computed capital gains, making them eligible for the exemption under section 54.
8. The ITAT analyzed the law and previous judgments, emphasizing that the focus should be on the utilization of capital gains in the construction of a new residential house to claim the exemption.
9. Considering the facts presented, the ITAT concluded that the assessee had indeed invested more than the capital gains, making them eligible for the exemption under section 54.
10. However, due to the lack of documentary evidence, the ITAT directed the issue to be restored to the Assessing Officer for verification of the investment in construction. If the evidence is found satisfactory, the benefit of section 54 should be allowed.
11. The ITAT allowed the appeal for statistical purposes, directing the Assessing Officer to examine the documentary evidence provided by the assessee regarding the investment in construction for the claim of exemption under section 54.

This detailed analysis of the judgment highlights the assessment of the claim under section 54 of the Income Tax Act, emphasizing the importance of documentary evidence to support the investment in construction for claiming exemptions.