2023 (1) TMI 829 - AT - Income Tax

Computation of capital gains - deduction u/s 54F - assessee has purchased adjacent land and constructed residential property - CIT(A) upheld disallowance and also upheld the restriction of deduction on the ground that unutilized gains were not deposited in Capital Gains Account Scheme - HELD THAT - Assessee has entered into sale agreement dated 15.05.2013 for sale of property for Rs.283 Lacs. The terms of the sale agreement has been honored and the intended purchaser has paid sale consideration from time to time. The full sale consideration has been paid on 16.12.2013 whereas sale deed has been executed on 23.02.2015. The possession is stated to be handed over on 15.10.2014. As against installments so received, the assessee has purchased land on 29.11.2013 which falls within one year from receipt of full sale consideration as well as handing over of the possession. Undisputedly the investment has been made out of part of sale consideration. Simply because the sale deed has been executed subsequently, the deduction of Rs.45 Lacs could not be denied to the assessee. Investment in subsequent property is concerned, we find that the assessee has purchased adjacent land and constructed residential property on the same. The assessee made investment in land for Rs.57.10 Lacs as well as incurred substantial construction expenditure to the extent of Rs.130.56 Lacs Only small amount of Rs.30.56 Lacs was spent thereafter. The provisions of Sec.54F are beneficial provisions and therefore, the substantial compliance of the same by the assessee, in our considered opinion, would entitle the assessee to claim full deduction. Therefore, Ld. AO is directed to allow remaining deduction of Rs.30.56 Lacs also

Summary

Issues:
1. Disallowance of construction expenses incurred by the assessee.
2. Disallowance of investment made by the assessee in purchasing adjacent property.
3. Addition under capital gains and levy of tax.

Analysis:
1. The appeal pertains to the assessment year 2015-16, challenging the disallowance of construction expenses and investment made by the assessee. The Assessing Officer (AO) disallowed part of the construction expenses and investment, leading to a grievance regarding the computation of capital gains. The delay in filing the appeal was condoned, and the case was admitted for adjudication on merits.

2. The assessment revealed that the assessee sold a property in 2015 and purchased land and building subsequently. The AO held that the deduction under section 54F should be restricted due to non-compliance with the Capital Gains Account Scheme. The AO's decision was based on a precedent from the Bombay High Court. The AO disallowed the deduction for the property purchased in 2013 but allowed it for the property purchased in 2015.

3. The CIT(A) upheld the disallowance and deduction restriction, leading to the assessee's further appeal. The Tribunal found that the investment in the property purchased in 2013 was valid as it was made within one year of receiving the full sale consideration. Regarding the property purchased in 2015, the Tribunal considered the substantial compliance with Sec. 54F and directed the AO to allow the remaining deduction. Consequently, the appeal was allowed in favor of the assessee.

In conclusion, the Tribunal ruled in favor of the assessee, allowing the deduction for both the construction expenses and the investment made in purchasing adjacent property. The decision was based on the timing of investments and compliance with relevant provisions, ensuring the assessee's entitlement to the claimed deductions.