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2024 (7) TMI 1274 - AT - Income TaxLTCG - Deduction u/s 54F - circle rate of the property - Claim of the appellant that the circle rate of the property should not have been taken by the AO u/s 50C as on 01.09.2008 as the 'Agreement to Sale' was made in the month of August and part payment has already been received in June, has been rejected by CIT(A) - HELD THAT - We are of the considered view that First Proviso to Section 50C as inserted by Finance Act 2016 w.e.f 01.04.2017, certainly applies to the present facts and circumstances as the agreement was executed prior to the amendment but with intention to seal the deal and transaction of payment of earnest money of Rs. Ten Lac, was by way of cheques. The Bank account statements filed corroborate the same. The retrospective application of this First Proviso, as been upheld in CIT, Chennai Vs. Shri Vummudi 2020 (10) TMI 517 - MADRAS HIGH COURT as relied by ld. AR. The CIT(A) has also fallen in error to hold that application is prospective. Deduction u/s 54F - Tax authorities below have fallen in error in not considering the agreement to sell as an investment in a house for the purpose of section 54F when whole of the amount stood paid and possession delivered. Thus we consider it an appropriate case to set aside the findings on issue of computation of capital gains to the files of AO with directions to take into consideration the aforesaid conclusions of this Bench and complete the re-computation of the capital gains afresh. An opportunity of hearing be given to the assessee for the same.
Issues Involved:
1. Validity of the circle rate applied by the Assessing Officer (AO) under Section 50C of the Income Tax Act. 2. Eligibility for deduction under Section 54F of the Income Tax Act for investments in new residential property. Detailed Analysis: 1. Validity of the Circle Rate Applied by the AO under Section 50C: The appellant contested the AO's application of the circle rate of Rs. 29,000 per sq. meter effective from 01.09.2008, arguing that the 'Agreement to Sale' was executed on 14.08.2008 when the circle rate was Rs. 20,000 per sq. meter. The AO calculated the sale consideration at Rs. 1,30,50,000 against the declared Rs. 90,00,000 based on the revised circle rate. The appellant relied on an amendment effective from 01.04.2017, which stipulates that the date of the 'Agreement to Sale' should be considered for circle rate purposes if the agreement and registration dates differ. The CIT(A) upheld the AO's application of the circle rate, considering the amendment to be prospective and not mandatory. The Tribunal, however, held that the First Proviso to Section 50C, inserted by the Finance Act 2016, applies retrospectively, as supported by the Hon'ble Madras High Court in CIT, Chennai Vs. Shri Vummudi. Therefore, the Tribunal found that the AO erred in applying the higher circle rate effective from 01.09.2008. 2. Eligibility for Deduction under Section 54F: The appellant claimed a deduction under Section 54F for an investment of Rs. 75,00,000 in a new residential property at Gagan Vihar. The AO allowed a deduction only for Rs. 20,53,350, the amount paid before the due date for filing the return under Section 139(1). The CIT(A) upheld this decision, noting that the appellant failed to produce a registered sale deed and considered the higher claim as an afterthought. The Tribunal examined the agreement to sell, which indicated that Rs. 75,00,000 was paid by cheque before the due date for filing the return. The Tribunal referenced several judicial precedents, including ITAT Delhi in ITO Ward 32(4) vs. Smt. Swati Oberoi and ITAT Bangalore in Smt. Kondamma vs. ITO, which held that the benefit of Section 54F should not be denied merely due to the absence of a registered sale deed if the payment and possession are established. The Tribunal concluded that the appellant should be allowed the deduction under Section 54F for the investment of Rs. 75,00,000, as the payment was made and possession was delivered before the due date for filing the return. The Tribunal set aside the findings on the computation of capital gains and directed the AO to recompute the capital gains, considering the Tribunal's conclusions. Conclusion: The appeal was allowed for statistical purposes, with directions to the AO to recompute the capital gains afresh, considering the Tribunal's findings on the retrospective application of the First Proviso to Section 50C and the eligibility for deduction under Section 54F based on the investment in the Gagan Vihar property.
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