2021 (7) TMI 774 - AT - Income Tax

Exemption u/s 54F - disallowance being long term capital gain on sale of plot - whether the ld. CIT(A) is correct in holding that as per the provisions of section 54F, the investment in the new asset has necessarily to be made from the net consideration received on the sale of the original asset and not from any other source? - HELD THAT - In CIT vs. Kapil Kumar Agarwal 2015 (12) TMI 1075 - PUNJAB AND HARYANA HIGH COURT it has been held that section 54F nowhere envisages that the sale consideration obtained by assessee from the original capital asset is mandatorily required to be utilized for purposes of meeting the cost of the new asset and where the investment made by assessee, although not entirely sourced from capital gain, but, was within stipulated time and more than the capital gain earned by him, the assessee was entitled to exemption under section 54F. The assessee s claim for exemption under section 54F of the Act is allowed and the disallowance being long term capital gain on sale of plot, is deleted. Deemed dividend u/s 2(22)(e) - HELD THAT - It is evident that there was an opening deposit/loan of the assessee, Shri Sudhir Srivastava, in the books of M/s Sun Eye Hospital Laser Center Private Limited. The assessee has given an advance to M/s Sun Eye Hospital Laser Center Private Limited, Lucknow. As rightly contended, there cannot be any addition as per section 2(22)(e). Accordingly, ground Nos.4 5 are accepted and the addition to the extent for deemed dividend under section 2(22)(e) of the Act is deleted.

Summary

Issues:
1. Disallowance of Long Term Capital Gain exemption under section 54F of the Income Tax Act.
2. Addition under section 2(22)(e) of the Income Tax Act.

Analysis:

Issue 1: Disallowance of Long Term Capital Gain exemption under section 54F:
The appellant appealed against the disallowance of Long Term Capital Gain exemption on the sale of a plot, claiming investment in a residential house under section 54F. The Assessing Officer rejected the claim citing ownership of multiple properties and non-utilization of sale consideration for the new asset. The appellant clarified the property ownership issue before the ld. CIT(A), who accepted the appellant's explanation. The ld. CIT(A) upheld the disallowance stating that the investment in the new asset must be from the net consideration received on the sale of the original asset. The appellant contended that section 54F does not mandate using the same fund for deduction. Citing relevant case laws, the Tribunal held in favor of the appellant, allowing the exemption and deleting the disallowance.

Issue 2: Addition under section 2(22)(e) of the Income Tax Act:
The Assessing Officer added an amount under section 2(22)(e) as deemed dividend, based on the cost of construction of a residential portion. The appellant argued that a loan given to a company should not be considered for the addition. The ld. CIT(A) confirmed the addition, stating it was undisclosed income, not a loan repayment. The appellant provided evidence of the loan given, and the Tribunal observed that no addition can be made for the loan amount, deleting the addition. Consequently, the appeal was allowed in favor of the appellant.

In conclusion, the Tribunal ruled in favor of the appellant, allowing the Long Term Capital Gain exemption under section 54F and deleting the addition under section 2(22)(e) of the Income Tax Act.