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2024 (5) TMI 1410 - AT - Income TaxLTCG - deduction u/s 54F - assessee failed to fulfill the conditions as prescribed in the Income-tax Act - Payments made to parties before the transfer of the asset AND Payments made to parties after the date of filing return of income u/s. 139 WITH No evidences such as bills / vouchers produced by the assessee for payments made to different parties HELD THAT - Primary goal of exemption provisions of sections 54 / 54F of the Act, are to promote housing. The procedural and enabling provisions of sub section (4) cannot be strictly construed to impose strict limitations on the assessee and in default thereof to deny him the benefit of exemption provisions. In the present case it was decided mutually by both the parties i.e. the buyer and seller that the final sale deed will be executed on making full payment of the sale consideration. However, since the assessee had consciously decided to sell the land and since the buyer was also certain to purchase the land, it was decided by the assessee to apply the funds of advance consideration towards the advance payments for construction of residential bungalow for timely compliance of provisions of section 54F. The assessee had already agreed to sell the property for certain amount and had decided to utilize the sale consideration for construction of new residential house on the land already owned by him, assessee had started all preliminary activities like finalization of design of a new bungalow, preparation of plan through architect, preparation of drawings and other preliminary requirements for approval of plan etc The assessee had assigned the composite contract for construction of a residential house to M/s United One Infra Pvt. Ltd. The said contract was given for RCC construction and masonry work inclusive of supply of basic raw material for construction as well as labour charges. Since the assessee had already received the permission for construction of a residential house as per the approved plan and since the construction was to be started, the said contractor had asked for advance payment for procurement of necessary raw material as well as for other construction activities to be carried out by it. Therefore, the assessee had made above stated payments to the said M/s. United One Infra Pvt. Ltd. Similarly, advance payment was made to Ashok Timber Trading Co. for procurement of round logs of teak wood so that sizing and cutting work can be started on procurement of goods as per the designs provided by the Architect. Moreover, the advantage of bulk purchases in a lot could also be taken by the assessee. Therefore, the deduction claimed by the assessee ought to have been allowed by the assessing officer considering that the provisions of section 54/54F are benevolent provisions with the object of promoting housing facilities. As decided in M. George Jeoseph 2021 (7) TMI 914 - KARNATAKA HIGH COURT wherein it was held that if the amount is spent for construction for a new residential house out of advance payments received, the assessee is entitled to claim exemption u/s 54F - we note that the payment made by the assessee before the sale of property should be allowable and addition was rightly deleted by ld CIT(A), hence we confirm the findings of ld CIT(A). Payments made to party after the date of filing of return - We note that assessing officer s action in rejecting the claim of expenditure of Rs. 3,30,04,128/- is not justifiable in as much as the assessing officer made wrong inquiry regarding purchase from A-Class Marble Pvt. Ltd. for A.Y. 2019-20 whereas the assessee had incurred expenditure in F.Y. 2020-21 and hence the said reply has no relevance with the facts of the case of the assessee. ITAT Chennai Bench in the case of ITO Vs. Rekha Shetty 2020 (8) TMI 312 - ITAT CHENNAI held that Mere non-compliance of a procedural requirement under section 54(2) itself cannot stand in the way of the assessee in getting the benefit under section 54, if he is, otherwise, in a position to satisfy that the mandatory requirement under section 54(1) is fully complied with within the time limit prescribed therein. We note that based on the above facts, the assessee is able to prove that the transaction does exist. Having regard to above judicial pronouncements and submission of the assessee, CIT(A) held that the utilization of capital gain has been done in the right spirit of the law and therefore merely for not depositing money in capital gain account and that too during Covid 19 pandemic, shall be held reason for non-granting deduction, was not justifiable on the part of the AO. Therefore, ld CIT(A) allowed as deduction - We have gone through the above findings of ld CIT(A) and noted that there is no infirmity in the conclusion reached by ld CIT(A), hence we approve and confirm the findings of ld CIT(A). Payments made to different parties - During the course of assessment proceedings, the assessee had submitted all the details and the said party had also responded to notice u/s 133(6) of the Act and submitted its confirmation letter, cross copy of ledger account from his books of accounts and copies of all invoices along with copy of relevant bank statement reflecting the payments given by the assessee. A copy of the said confirmation letter is enclosed - assessee had already incurred the expenses for construction of a residential house and the assessee had also established the genuineness of expenses. Therefore, we note that assessee has provided bank statements confirming payments made to the sellers. The assessing officer has also received confirmation from each of the sellers, confirming the transaction. The residential house was completed within the time period of three years as per the requirement of section 54F of the Act. Based on these facts, ld CIT(A) held that the transaction has been established genuine and that the amount has actually spent in construction of house. Appeal filed by the Revenue is dismissed.
Issues Involved:
1. Deduction u/s 54F of the Act for Rs. 4,39,25,097/- 2. Deletion of addition of Rs. 2,03,55,192/- 3. Deletion of addition of Rs. 3,30,04,128/- 4. Deletion of addition of Rs. 3,75,00,000/- Summary: 1. Deduction u/s 54F of the Act for Rs. 4,39,25,097/-: The Revenue contended that the assessee failed to fulfill the conditions prescribed in the Income-tax Act for claiming a deduction u/s 54F. The Tribunal noted that the assessee sold two plots of land and invested Rs. 22,92,48,201/- towards the construction of a new residential house, claiming a deduction u/s 54F. The Assessing Officer (AO) recomputed the exemption and disallowed Rs. 4,39,25,097/- as excess claim. However, the Tribunal upheld the CIT(A)'s decision to allow the deduction, emphasizing that the provisions of section 54F are benevolent and should be interpreted liberally to promote housing. 2. Deletion of addition of Rs. 2,03,55,192/-: The AO disallowed Rs. 2,03,55,192/- paid to various parties before the transfer of the asset, arguing that these payments did not qualify for deduction u/s 54F. The Tribunal, however, noted that the assessee had received advance payments for the sale of plots and used these funds for construction activities, which were in compliance with section 54F. The Tribunal cited various judicial precedents supporting the view that advance payments for construction qualify for deduction u/s 54F and upheld the CIT(A)'s decision to delete the addition. 3. Deletion of addition of Rs. 3,30,04,128/-: The AO disallowed Rs. 3,30,04,128/- paid after the due date of filing the return, arguing that the assessee did not deposit the un-appropriated amount in a bank account under the Capital Gains Scheme as required u/s 54F(4). The Tribunal noted that the payments were made in installments for a bill dated 30.03.2021 and that the assessee had already incurred the expenditure before the due date specified u/s 139(4). The Tribunal emphasized that section 54F is a beneficial provision and should be interpreted liberally, especially during the Covid-19 pandemic. The Tribunal upheld the CIT(A)'s decision to allow the deduction. 4. Deletion of addition of Rs. 3,75,00,000/-: The AO disallowed Rs. 3,75,00,000/- paid as advances to various parties, arguing that these payments did not constitute actual expenditure for construction. The Tribunal noted that the assessee had made advance payments for the supply of specific goods required for construction and provided bank statements confirming the payments. The Tribunal found the transactions to be genuine and held that the payments were made for incurring expenses towards construction. The Tribunal upheld the CIT(A)'s decision to delete the addition. Conclusion: The Tribunal dismissed the Revenue's appeal and upheld the CIT(A)'s order, allowing the deductions claimed by the assessee u/s 54F of the Act.
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