2024 (3) TMI 660 - AT - Income Tax

LTCG - Exemption claimed u/s. 54F - disallowance on the ground that the amount deposited in capital gain deposit scheme was not invested in purchase or construction of any property within the stipulated time period as per sub-section (1) of Sec.54F - HELD THAT - Assessee has deposited the sale consideration in capital gain account scheme which was withdrawn on 27-02-2014 and 28-02-2014. On the other hand, the assessee purchased new asset (plot) on 07-02-2011 and entered into construction agreement on 19-01-2011. The lower authorities has considered these dates as the relevant dates to examine the claim of the assessee overlooking the fact that the construction agreement had stipulations that the construction would be completed in 18 months from the date when the builder gets approval. The payment towards construction has been made between 01-06-2011 to 14-06-2013 and the possession has been obtained on 05-02-2013. All these events are within the stipulated period of one year prior and two years thereafter as counted from 24-02-2012. In our opinion, there is no requirement that specific money as deposited in capital gain account scheme should be utilized towards new investment. The assessee may make investment from other funds as available with him and the same would not jeopardize the claim of the assessee. The decision of Pune Tribunal in Sohanlal Mohanlal Bhandari vs. ACIT 2019 (4) TMI 203 - ITAT PUNE supports this view. The bench held that it is open for the assessee to use either own or borrowed funds for purchase or construction of new residential house and it is nowhere provided that only sale proceeds of original asset should be utilized for this purpose. Therefore, we direct Ld. AO to grant impugned deduction to the assessee. Appeal of assessee allowed.

Summary

Issues:
The judgment involves the assessee's appeal for Assessment Year 2015-16 challenging the order of the Commissioner of Income Tax (Appeals) regarding the disallowance of exemption claimed under section 54F of the Income Tax Act.

Issue 1 - CIT(A)'s Order Error:
The appellant contended that the CIT(A)'s order was erroneous in law and contrary to the facts of the case, seeking to set it aside.

Issue 2 - Disallowance of Exemption under Sec. 54F:
The CIT(A) disallowed the exemption claimed under section 54F, stating that the amount deposited in the capital gain deposit scheme was not invested within the stipulated time period as required by Sec. 54F.

Issue 3 - Interpretation of Sec. 54F:
The appellant argued that Sec. 54F does not mandate that the sum deposited in the capital gains account should be directly invested in the new property, emphasizing that the focus should be on purchasing or constructing a residential property within the specified time.

Issue 4 - Timeliness of Property Purchase:
The CIT(A) upheld the disallowance under Sec. 54F, citing that the purchase of land and construction agreement for residential flats were made beyond one year prior to the sale of the original asset, which was a crucial factor for claiming the exemption.

Issue 5 - Possession and Construction Timeline:
The appellant asserted that although the agreements for land purchase and construction were made earlier, the physical possession and payments for construction were completed within the stipulated time frame from the sale of the original asset, making them eligible for the Sec. 54F exemption.

Decision:
The Appellate Tribunal considered the arguments presented by both parties and analyzed the timeline of events. It was noted that the construction of the new property should have been completed within three years of the sale of the original asset, as required by Sec. 54F. However, the property purchased by the assessee was still undeveloped within the specified time frame.

Upon further examination, it was revealed that the funds from the capital gain account scheme were not utilized for the purchase or construction of a new house within the prescribed period. The lower authorities denied the deduction based on this non-compliance.

In the final ruling, the Tribunal overturned the lower authorities' decision, emphasizing that the specific money deposited in the capital gain account scheme did not necessarily have to be used for the new investment. Citing a precedent, the Tribunal clarified that the assessee could utilize other available funds for the purchase or construction of the new property without jeopardizing the claim for deduction under Sec. 54F. Consequently, the Tribunal directed the Assessing Officer to grant the deduction to the assessee, allowing the appeal in favor of the assessee.