2020 (5) TMI 373 - AT - Income Tax

Deduction u/s 54F on account of construction of house - assessee has already purchased the residential flat at Rajendra Nagar out of the sale proceeds - HELD THAT - Revenue authorities have mislead themselves on holding that the purchase of the Rajendra Nagar flat out of the sale proceeds of the original asset was on the basis of wrong facts. Keeping in view the facts of the case that the capital gains have been utilized for construction of house at D-279, Defence Colony, New Delhi and as per the provisions of the Act, the assessee doesn t have more than one house which is chargeable to tax under the head income from house property other than the one residential house owned on the date of sale of original asset, we hereby hold that the addition made by the revenue authorities is unwarranted. - Decided in favour of assessee.

Issues Involved:
1. Denial of benefit under Section 54 of the Income Tax Act, 1961.
2. Upholding of assessment and disallowance of Long Term Capital Gain.
3. Dispute regarding the construction on the property at D-279, Defence Colony, New Delhi and the corresponding deduction under Section 54F.

Issue-wise Detailed Analysis:

1. Denial of Benefit under Section 54 of the Income Tax Act, 1961:
The assessee challenged the denial of the benefit under Section 54, arguing that the ITO erroneously relied on Clause 2(a) of Section 54F, which was not applicable to the facts of the case. The assessee had sold immovable property and claimed deduction under Section 54F for the construction of a house at D-279, Defence Colony, New Delhi. The calculation of long-term capital gain was provided, and the assessee had deposited the capital gains in a capital gains savings account as required by the Act. The AO, however, disallowed the claim, stating that the assessee had purchased another residential flat at Rajendra Nagar, making them ineligible for the deduction under Section 54F.

2. Upholding of Assessment and Disallowance of Long Term Capital Gain:
The CIT(A) upheld the AO's assessment, maintaining the disallowance and additions of the Long Term Capital Gain at ?1,76,95,024/-. The AO's decision was based on the fact that the assessee had purchased another residential property within the stipulated period, which they believed disqualified the assessee from claiming the deduction under Section 54F.

3. Dispute Regarding Construction on Property at D-279, Defence Colony, New Delhi:
The assessee argued that the authorities' decisions were based on incorrect facts regarding the construction on the property at D-279, Defence Colony, New Delhi. The assessee had withdrawn funds from the capital gains savings account and other joint accounts to finance the construction. The occupancy certificate for the property indicated that construction was completed within the required timeframe. The Tribunal found that the revenue authorities had erred in their assessment, as the capital gains were utilized for the construction of the house at D-279, and the assessee did not own more than one residential house at the time of the sale of the original asset.

Conclusion:
The Tribunal concluded that the revenue authorities had misled themselves by holding that the purchase of the Rajendra Nagar flat was out of the sale proceeds of the original asset. The facts showed that the capital gains were utilized for the construction of the house at D-279, Defence Colony, New Delhi. The assessee did not own more than one residential house chargeable to tax under the head "income from house property" other than the one owned at the time of the sale of the original asset. Therefore, the addition made by the revenue authorities was deemed unwarranted, and the appeal of the assessee was allowed.

Order:
The appeal of the assessee was allowed, and the order was pronounced in the Open Court on 30/04/2020.

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