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2024 (8) TMI 493 - AT - Income TaxDenial of exemption u/s. 54 - assessee failed to deposit unutilized amount of capital gain in separate account and also not filed the Return of Income as prescribed u/s.139(1) - HELD THAT - We find that the assessee is eligible to claim deduction under this section, even if a new residential house is purchased within one year before the date of transfer of capital asset, which means that assessee has to make use of funds other than the sale consideration of house sold for investing in a residential Flat and it is not mandatory that only the sale consideration of Flat sold is to be utilized for purchasing or constructing a new residential house. In the present case the assessee has utilized other funds (apart from sale consideration) for constructing new residential house and for this reason only he cannot be denied deduction u/s 54 of the Act. As going through the provisions of section 54 we also observe that there is no mention about the date of start of construction of residential house, but it only refers to a construction of a residential house, which in our view is the date of completion of the constructed residential house habitable for the purpose of residence. Whether the assessee is entitled for claiming exemption u/s. 54 where the return is filed belatedly u/s. 139(4)? - As relying on C. Aryama Sundaram 2018 (8) TMI 864 - MADRAS HIGH COURT and Manilal Dasbhai Makwana 2018 (8) TMI 1244 - ITAT AHMEDABAD we are of the considered view, the assessee is eligible for deduction u/s. 54 and we hereby direct the AO to grant deduction and delete the addition made by him. Thus the Ground of Appeal raised by the Assessee are allowed.
Issues Involved:
1. Delay in filing the appeal. 2. Denial of exemption under Section 54 of the Income Tax Act, 1961. 3. Validity of the appellate order by CIT(A). 4. Eligibility for exemption under Section 54 for investments made prior to the transfer of the original asset. 5. Impact of filing the return of income belatedly under Section 139(4). Detailed Analysis: 1. Delay in Filing the Appeal: The appeal was delayed by 672 days. The assessee explained the delay through a notarized affidavit, citing that the appellate order was served during the Covid-19 pandemic, which hindered timely filing. The Assessing Officer's report confirmed no proof of service date. The Tribunal accepted the explanation and condoned the delay. 2. Denial of Exemption under Section 54: The Assessing Officer denied the exemption under Section 54 because the assessee did not deposit the unutilized amount of capital gain in a separate account and filed the return belatedly under Section 139(4). The CIT(A) partially allowed the appeal, directing a recalculation of the exemption under Section 54, considering only the investments made after the sale of the original property. 3. Validity of the Appellate Order by CIT(A): The assessee contended that the CIT(A)'s order was vague and did not properly address the allowability of the exemption under Section 54. The Tribunal found that the CIT(A) correctly observed that the investment in a residential house includes the cost to make it habitable and directed the Assessing Officer to consider investments made after the sale of the original property. 4. Eligibility for Exemption under Section 54 for Investments Made Prior to the Transfer of the Original Asset: The Tribunal noted that Section 54 does not mandate that only the sale consideration from the original property must be used for the new investment. Investments made within one year before or two years after the transfer, or construction completed within three years, are eligible for exemption. The Tribunal cited various judicial precedents supporting this interpretation, including decisions from the Karnataka and Allahabad High Courts. 5. Impact of Filing the Return of Income Belatedly under Section 139(4): The Tribunal referred to the case of Manilal Dasbhai Makwana and the Madras High Court's decision in C. Aryama Sundaram, which held that the exemption under Section 54 is available even if the return is filed under Section 139(4), provided the investment in the new asset is made within the stipulated period. The Tribunal concluded that the assessee is eligible for the exemption under Section 54, as the construction was completed within three years from the date of transfer, and the return was filed within the extended period under Section 139(4). Conclusion: The Tribunal allowed the appeal, directing the Assessing Officer to grant the deduction under Section 54 and delete the addition made. The decision emphasized that the assessee's investments in the new property, including those made before the sale of the original asset, are eligible for exemption, and the belated filing of the return under Section 139(4) does not disqualify the assessee from claiming the exemption. Order Pronounced: The appeal filed by the Assessee is allowed. The order was pronounced in the open court on 07-08-2024.
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