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2020 (11) TMI 312 - AT - Income TaxDisallowance u/s 54F - Investment of Sale consideration for claiming exemption on LTCG - Advance was given for purchase of new residential property but the transaction was not materialized due to litigation - purchase of new residential property thereafter after getting refund of advance - failure to deposit into the capital gain account with the authorized banks - HELD THAT - In view of decisions of Sunayana Devi 2017 (9) TMI 961 - ITAT KOLKATA and Mrs. Seema Sabharwal V/s ITO (supra) reliance has been placed on the judgment in the case of CIT V/s K. Ramachandra Rao (supra) 2015 (4) TMI 620 - KARNATAKA HIGH COURT and a liberal view has been taken for the benefit of an assessee if he/she purchases within two years or construct within 3 years a residential house then the exemption u/s 54F cannot be denied for the reason that the assessee failed to deposit un utilized amount in capital gain account scheme before the due date prescribed u/s 139(1) of the Act. Examining the facts of the instant case in the light of above two decisions we find that both are squarely applicable in the case of assessee as in the instant case. Assessee s case is on a much strong footing for the reason that at the time when he received the advance from sale of original property the assessee with an intention to purchase the residential flats at Bhopal have given the advance of to the builder. This fact was duly shown by the assessee in the computation of income and exemption u/s 54F of the Act was claimed on the basis of the advance given to buy the residential property at Bhopal and also the advance given to purchase the property at Thane. This fact is not rebutted by the revenue authorities. A.O has also not given any contradictory finding to the fact that the assessee has parted off with whole of the sale consideration from sale of original capital asset for purchase of residential property at Bhopal before the due date of filing of return of income for Assessment Year 2013-14. Even before Ld. CIT(A) this fact was brought to notice but since the Bhopal project could not take up and assessee had no more hope of getting residential property at Bhopal he focused on investment made in the residential property at Thane. As truly discernable that assessee tried to fulfill the condition of purchase of residential house before one year from the date of transfer but due to litigation the Bhopal project could not take up and assessee s fund were blocked which were subsequently realized in parts. But he in order to fulfill the condition of purchasing the residential house within two years from the date of sale of property took loans as well as used his own funds to invest for purchasing residential property at Thane. Thus the bonafide intention of the assessee of fulfilling the substantive conditions of provisions of Section 54F(1) cannot be doubted. Since the assessee has fulfilled the substantive condition of Section 54F(1) of the Act by way of utilizing the sale consideration from sale of the capital asset (other than residential house) within two years of sale of original capital asset assessee is eligible for deduction u/s 54F(1) - Ground No.1 of the assessee s appeal is allowed.
Issues Involved:
1. Disallowance of exemption under Section 54F of the Income Tax Act. 2. Procedural compliance regarding deposit in Capital Gains Account Scheme. Issue-wise Detailed Analysis: 1. Disallowance of Exemption under Section 54F: The primary issue was the disallowance of ?75,83,229/- under Section 54F of the Income Tax Act. The assessee sold a co-owned plot, earning a Long Term Capital Gain of ?1,06,95,941/-. The assessee claimed exemption under Section 54F by investing in residential properties at Bhopal and Thane. The Assessing Officer (A.O.) restricted the exemption to ?15,56,356/- due to joint ownership with the wife and non-deposit of the remaining amount in the Capital Gains Account Scheme before the due date of filing the return. The CIT(A) allowed partial relief but maintained the disallowance for the remaining amount. 2. Procedural Compliance Regarding Deposit in Capital Gains Account Scheme: The A.O. and CIT(A) observed that the assessee did not deposit the unutilized sale consideration in the Capital Gains Account Scheme as required under Section 54F(4). The A.O. restricted the exemption to the amount invested before the due date of filing the return, resulting in the disallowance of ?75,83,229/-. The CIT(A) upheld this view, emphasizing the mandatory nature of the deposit requirement. Tribunal's Findings: The Tribunal examined whether the procedural lapse of not depositing the unutilized amount in the Capital Gains Account Scheme could deny the exemption under Section 54F, despite the assessee fulfilling the substantive condition of investing in a residential property within the stipulated period. Relevant Judgments and Interpretation: - Karnataka High Court in CIT vs. K. Ramachandra Rao: Held that if the sale consideration is utilized for purchasing or constructing a residential house within the stipulated period, the requirement to deposit the unutilized amount in the Capital Gains Account Scheme is not mandatory. - Bombay High Court in Humayun Suleman Merchant vs. CIT: Contrarily, held that the deposit in the Capital Gains Account Scheme is mandatory for claiming the exemption. - Madras High Court in Venkata Dilip Kumar vs. CIT: Followed the Karnataka High Court's liberal interpretation, emphasizing the substantive compliance over procedural requirements. Tribunal's Decision: The Tribunal favored the liberal interpretation as per the Karnataka and Madras High Courts, emphasizing the beneficial nature of Section 54F. The Tribunal noted that the assessee invested the entire sale consideration in a residential property within two years, fulfilling the substantive requirement. The procedural lapse of not depositing the amount in the Capital Gains Account Scheme was deemed non-fatal to the exemption claim. Conclusion: The Tribunal allowed the appeal, granting the exemption under Section 54F for the entire Long Term Capital Gain of ?1,06,95,941/-, thereby deleting the disallowance of ?75,83,229/-. The decision emphasized the importance of substantive compliance over procedural lapses in beneficial provisions like Section 54F.
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