2023 (6) TMI 517 - AT - Income Tax

Deduction u/s 54F - LTCG - quantum of investment to be made in the New House Property - Actual consideration or Value or transferred property determined as per Section 50C - deduction denied as assessee has not deposited the sale consideration received on transfer of the property in capital gain account as per provisions of section 54F(4) - HELD THAT - In the instant case, the cost of new asset is not less than the net consideration thus the whole of the capital gains will not be charged even if the capital gains has been computed by adopting the value adopted by stamp registration authority. It is clearly mentioned in s. 54F(4) also that net consideration which is not appropriated towards the purchase of new asset then the same is to be taxed in case such net consideration not appropriated is not deposited in the capital gain account. It is not necessary that the new asset should be got registered before filing of the return. The requirement of law is that net consideration is required to be appropriated towards the purchase of the new asset. Thus deduction under s. 54F is clearly applicable. The natural meaning of full value of consideration refers to consideration specified in the Sale Deed. In this regard, in the case CIT vs. Smt. Nilofer I. Singh 2008 (8) TMI 165 - DELHI HIGH COURT had held that full value of consideration refers to the consideration specified in the sale deed. Thus when the assessee has invested entire actual sales consideration received by him in the purchase and construction of new house accordance with the provision of section 54F(1) thereafter the provision of section 50C has not been applicable - we are of the view that assessee is entitled to exemption under section 54F. Thus, the disallowance made is hereby deleted - Decided in favour of assessee.

Summary

Issues Involved:
1. Application of Section 54F(1) of the Income Tax Act.
2. Applicability of Section 50C.
3. Calculation of Long Term Capital Gain (LTCG) and Indexation Benefits.
4. Adoption of Fair Market Value.
5. Cost of Construction.
6. Deduction under Section 54F.
7. Partial Disallowance of Deduction under Section 54F.
8. Charging of Interest under Sections 234A, 234B, and 234C.

Summary:

1. Application of Section 54F(1) of the Income Tax Act:
The assessee claimed exemption under Section 54F, arguing that the entire actual sale consideration was invested in the construction of a residential house. The Tribunal noted that the assessee had invested Rs. 23,89,100/- in the new house, which was more than the actual sale consideration of Rs. 11,60,000/-. The Tribunal held that the "net consideration" as defined in Explanation to Section 54F(1) refers to the actual consideration received, not the value under Section 50C.

2. Applicability of Section 50C:
The Tribunal ruled that Section 50C, which deems the value adopted for stamp duty purposes as the full value of consideration, is applicable only for computing capital gains under Section 48. It does not extend to exemptions under Section 54F. The Tribunal cited various judicial decisions to support this interpretation, including the Hon'ble ITAT Jaipur Bench in Gyan Chand Batra vs. ITO and the Hon'ble Karnataka High Court in Gouli Mahadevappa vs. ITO.

3. Calculation of Long Term Capital Gain (LTCG) and Indexation Benefits:
The AO computed LTCG by taking the sale consideration as Rs. 20,78,310/- (DLC value) and allowed a limited cost of construction. The Tribunal found that the assessee had invested the entire actual sale consideration in the new house before the due date for filing the return under Section 139(4). Therefore, the entire capital gain should not be charged to tax.

4. Adoption of Fair Market Value:
The Tribunal observed that the fair market value adopted by the AO was not substantiated with documentary evidence from the assessee. The Tribunal directed that the cost of construction should be considered based on reliable material, rather than an arbitrary estimation.

5. Cost of Construction:
The Tribunal found that the cost of construction declared by the assessee was reasonable and supported by evidence. The Tribunal directed the AO to adopt the cost of construction as declared by the assessee, which was Rs. 2,57,500/-.

6. Deduction under Section 54F:
The Tribunal held that the assessee was entitled to the deduction under Section 54F as the entire actual sale consideration was invested in the construction of the new house. The Tribunal referred to various judicial precedents to support this view, including decisions from the Hon'ble ITAT Chandigarh Bench and the Hon'ble Karnataka High Court.

7. Partial Disallowance of Deduction under Section 54F:
The Tribunal noted that the lower authorities had partially disallowed the deduction under Section 54F on the ground that the assessee had not deposited the sale consideration in a capital gain account scheme. However, the Tribunal held that since the entire actual sale consideration was utilized before the due date of filing the return, the partial disallowance was not justified.

8. Charging of Interest under Sections 234A, 234B, and 234C:
The Tribunal did not specifically address the issue of charging interest under Sections 234A, 234B, and 234C in the summary provided.

Conclusion:
The Tribunal allowed the appeal of the assessee, directing the AO to grant the exemption under Section 54F and to adopt the cost of construction as declared by the assessee. The Tribunal emphasized that the actual consideration received should be considered for the purpose of Section 54F, and the deeming provisions of Section 50C should not be applied to exemptions under Section 54F.