2021 (8) TMI 220 - AT - Income Tax

Exemption u/s 54F - completion of construction or just investment - claim denied as assessee did not complete the construction of house within a period of three years albeit the construction work was going on - whether it is completion of construction or just investment of net consideration in construction which is sine qua non for granting exemption u/s 54F? - HELD THAT - The requirement of section 54F is, inter-alia, to construct the residential house within a period of three years by investing the net consideration. The proviso to this section also states that the exemption shall not be allowed if the assessee constructs any residential house, other than the new asset, within a period of three years after the date of transfer of the original asset. So the emphasis in the provision is on constructing. Nowhere does the provision lay down a stipulation of completion of construction as a condition precedent for claiming the exemption. Once the construction has been started and the requisite amount has been invested in the same, the requirement of section 54F gets fulfilled notwithstanding the fact that the construction does not get completed within the given period of three years. On the facts of extant case, it is amply clear that the assessee invested ₹ 2.24 crores and odd in the construction of house within a period of three years, which construction was incomplete at the end of the stipulated period, but got actually completed at a later stage as has been recorded by the ld. CIT(A) on the last page of his order. It is further not disputed that the assessee invested a sum of ₹ 1 crore in the Capital Gains Scheme Account. We concur with the ld. CIT(A) in granting exemption u/s 54F - Decided in favour of assessee.

Summary

Issues:
- Deletion of addition of ?3,01,10,936 made by the AO by disallowing the exemption u/s 54F of the Income-tax Act, 1961.

Analysis:
1. Issue of Exemption u/s 54F:
- The appeal pertained to the deletion of an addition made by the AO regarding the exemption u/s 54F of the Income-tax Act, 1961.
- The assessee, engaged as a Builder, sold a portion of land and reinvested the proceeds in a residential property to claim exemption u/s 54F.
- The AO disallowed the exemption as the construction of the house was incomplete within the stipulated three years.
- The CIT(A) overturned the assessment order, leading to the Revenue's appeal before the Tribunal.

2. Construction vs. Investment Requirement:
- The crux of the issue was whether completion of construction or investment of net consideration was necessary for granting exemption u/s 54F.
- Section 54F mandates constructing a residential house within three years by investing the net consideration.
- The provision does not specify completion of construction as a prerequisite for claiming the exemption.
- The Tribunal noted that the assessee invested the required amount in construction within the stipulated period, even though the construction was incomplete.
- The completion of construction at a later stage was acknowledged by the CIT(A), supporting the grant of exemption u/s 54F.

3. Decision and Conclusion:
- The Tribunal concurred with the CIT(A) in granting the exemption u/s 54F, emphasizing the investment made within the prescribed timeline.
- The completion of construction beyond the three-year period did not negate the eligibility for exemption under section 54F.
- The appeal by the Revenue was dismissed, upholding the decision in favor of the assessee.

This detailed analysis highlights the key aspects of the judgment, focusing on the interpretation of the provisions of section 54F and the significance of timely investment in construction for claiming exemption under the Income-tax Act, 1961.