2022 (5) TMI 1383 - AT - Income Tax

LTCG - Period of holding of asset - deduction u/s 54 - HELD THAT - Assessing Officer has rightly brought to tax gains on the sale of land as long term capital gain as the land was purchased in financial year 2006-07(ay 2007-08) which was sold in financial year 2013-14(ay 2014-15) on which the Assessing Officer has rightly allowed the deduction u/s. 54 - So far as the residential building/house constructed on the said land is concerned, it was constructed in ay 2014-15 on the aforesaid land, and the residential house was sold in ay 2014-15 itself, the residential house was held for less than thirty six months, it is to be classified as short term capital asset and the gains arising therefrom shall be short term capital gains. The plain language of Section 54 clearly stipulate that deduction u/s 54 shall be allowed only on long term capital gains arising from sale of residential property, and the said deduction can no stretch of imagination be allowed on the short term capital gains - CIT(A) has rightly affirmed the assessment order passed by the AO, by relying upon the decisions of Hon ble High Court, as are mentioned in its appellate order. It is also undisputed that the property which was sold was an residential house property. The apportionment to be done between land and building was required to be done, as land is long term capital asset in the instant case, while constructed residential house was held for not more than thirty six months. Further, the asset sold is composite being land and residential house constructed by the assessee, and hence for granting deduction u/s 54 of the 1961 Act, it is to be considered that the property sold was residential, and hence benefit u/s 54 will be available while reckoning the entitlement of the assessee for benefit u/s 54, while it is different matter, the same shall be restricted to long term capital gains arising on sale of land being long term capital asset for computing eligibility of deduction u/s 54 and its computation thereof, as the residential building/house constructed on the said land cannot be considered for grant of deduction u/s 54, being a short term. capital asset. Thus, this appeal filed by the assessee lacks merit. - Decided against assessee.

Summary

Issues Involved:
1. Addition under the head 'Capital Gain'.
2. Consideration of expenditures incurred in construction of property.
3. Denial of deduction under Section 54 of the Income-tax Act, 1961.
4. Interest charged under different sections of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Addition under the head 'Capital Gain':
The assessee challenged the addition of Rs. 13,99,840/- under the head 'Capital Gain', arguing that the investment made in the construction of another property should be considered while determining the capital gain. The Assessing Officer (AO) computed the capital gains based on the sale of a constructed house and land, denying certain claimed expenditures due to lack of evidence. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO’s decision, and the Tribunal also dismissed the appeal, reiterating that the benefit of deduction under Section 54 cannot be extended to short-term capital gains arising from the sale of a recently constructed house.

2. Consideration of expenditures incurred in construction of property:
The assessee claimed expenditures of Rs. 3,00,000/- for constructing a boundary wall and filing soil, which were not substantiated with evidence. The AO denied this benefit, and the CIT(A) concurred, noting the lack of supporting documentation. The Tribunal also found no merit in the assessee's claim due to the absence of evidence and upheld the decisions of the lower authorities.

3. Denial of deduction under Section 54 of the Income-tax Act, 1961:
The primary dispute was the denial of deduction under Section 54 on short-term capital gains from the sale of a house constructed and sold within the same financial year (2013-14). The AO allowed the deduction under Section 54 only for long-term capital gains on the sale of land, which was held for more than thirty-six months. The CIT(A) supported this view, citing several High Court decisions that distinguish between long-term and short-term assets for the purpose of Section 54. The Tribunal affirmed this stance, emphasizing that the plain language of Section 54 allows deductions only on long-term capital gains, and thus, the assessee's claim on short-term capital gains was rightly denied.

4. Interest charged under different sections of the Income-tax Act, 1961:
The assessee contended that the interest charged under various sections of the Income-tax Act was unjustified and illegal. However, this issue was not elaborated upon in the Tribunal's final decision, indicating that it was either not pursued vigorously or deemed unsubstantial in the context of the primary disputes.

Conclusion:
The Tribunal dismissed the appeal, upholding the decisions of the AO and CIT(A). The key points were the denial of certain construction expenditures due to lack of evidence, and the clear statutory language of Section 54, which restricts deductions to long-term capital gains only. The Tribunal found no merit in the assessee's claims and ruled in favor of the revenue authorities.