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2025 (2) TMI 32 - AT - Income TaxCapital gain computation - Consideration received for relinquishment of its right - Determination of sale consideration determined by AO - HELD THAT - There was no mention in the resolutions that the payments as agreed upon will be made after adjusting the outstanding loan advanced by the members to the society. In the ansence of any stipulation in the resolutions that the outstanding loan of the members would be adjusted from the payments as agreed upon the contention of the assessee that only the net amount (after adjusting the outstanding loan) should be considered as the sale consideration can t be accepted. The resolutions made it explicitly clear that the total amount of Rs. 10, 85, 28, 620/- was the consideration received by the assessee for relinquishment of its rights in the lands in favour of the societies. Accordingly the AO is directed to take the amount of Rs. 10, 85, 28, 620/- as the sale consideration for computation of capital gains on the relinquishment of its right in lands in favour of the societies. The ground taken by the assessee is parly allowed. Deduction u/s.54F - AO had disallowed the claim of the assessee for the reason that the purchase of the new asset was not completed within two years from the date of transfer to the original asset and neither the construction of the new asset was completed within 3 years from the date of transfer which was upheld by the Ld. CIT(A) - HELD THAT - Hon ble Karnataka High Court in the case of Smt. B. S. Shanthakumari 2015 (8) TMI 274 - KARNATAKA HIGH COURT held that once it was established that the assessee had invested entire net consideration in construction of residential house within the stipulated period it would meet the requirement of Section 54F of the Act and the assessee would be entitled to get benefit of Section 54F Revenue was not correct in disallowing the claim for deduction u/s.54F of the Actonly on the ground that the construction of the house was not completed within the stipulated period of 3 years from the date of transfer of the original asset. Claim for deduction u/s.54F also included legal charges which was not eligible for deduction - We find that other payments were on account of stamp paper and registration fee extra work legal charges etc. For the extra work payment a separate agreement dated 26th October 2018 was entered into by the assessee. For the payment in respect of legal charges no agreement has been brought on record. The advance maintenance charges deposited by the assessee are recurring in nature for the period post occupation of the property and can t be included in the cost of acquisition of the property. Payment for stamp and registration charges is required to be made to the Govt. Authority at the time of registration of the property. No payment for stamp duty and registration charge could have been made when the flat had not yet been constructed and property not yet registered. AO is directed to verify the correctness of the deduction u/s.54F as claimed by the assessee. The ground taken by the assessee is partly allowed. Disallowance of interest expenses u/s.57 - As explained by the assessee this amount was advanced to the societies for purchase of land. Therefore the interest in respect of these loans to the societies has to be treated as capital expenditure which was not eligible for deduction u/s.57 - Revenue was correct in disallowing the proportionate interest expenditure. However certain amount of loan taken from Kothari Finance was repaid during the year. Therefore the AO was not correct in disallowing the interest on the basis of opening balance. The AO is directed to rework the disallowance by taking into account the closing balance of loan taken from Kothari Finance as well as the closing balance of the loans utilized for earning of interest income. Ground taken by the assessee is partly allowed for statistical purposes.
ISSUES PRESENTED and CONSIDERED
The core legal issues considered in this judgment include:
ISSUE-WISE DETAILED ANALYSIS 1. Delay in Filing the Appeal The Tribunal considered the explanation provided by the assessee regarding the delay in filing the appeal. The delay was attributed to the order being sent to an email ID belonging to the assessee's nephew, which was not communicated to the assessee. The Tribunal found the explanation satisfactory and condoned the delay. 2. Determination of Sale Consideration for Relinquishment of Rights in Land The legal framework involved the computation of capital gains under the Income Tax Act. The AO had determined the sale consideration based on the rate at which the land was sold by the societies to a third party, Cloud 9 Infraspace LLP. The assessee argued that the consideration should be based on the actual amount received from the societies, which was lower than the AO's determination. The Tribunal noted that the assessee was not a party to the sale deed executed by the societies and that the consideration for relinquishment should be based on the actual amount received. The Tribunal found that the AO had not verified the actual consideration received by the assessee and directed the AO to consider the amount as per the resolutions passed by the societies, which amounted to Rs. 10,85,28,620/-. The Tribunal partly allowed the assessee's ground on this issue. 3. Deduction under Section 54F The relevant legal framework involved the conditions for claiming deduction under Section 54F, which requires the completion of construction within three years from the date of transfer of the original asset. The AO disallowed the deduction on the grounds that the construction was not completed within the stipulated period. The Tribunal referred to precedents, including decisions from the Karnataka High Court and the Tribunal itself, which held that if the entire consideration is invested in the construction of a residential house within the stipulated period, the deduction should be allowed irrespective of the completion status. The Tribunal directed the AO to verify the correctness of the deduction claimed and partly allowed the assessee's ground. 4. Disallowance of Interest Expenses under Section 57 The legal framework involved the deduction of expenses under Section 57, which requires that the expenditure be laid out wholly and exclusively for earning income. The AO disallowed a portion of the interest expenses as the entire borrowed fund was not utilized for earning income. The Tribunal found that the AO had incorrectly based the disallowance on the opening balance of the loan without considering repayments made during the year. The Tribunal directed the AO to rework the disallowance by considering the closing balance of the loan and the funds utilized for earning interest income. The Tribunal partly allowed the assessee's ground for statistical purposes. SIGNIFICANT HOLDINGS The Tribunal condoned the delay in filing the appeal, emphasizing the importance of considering genuine explanations for procedural delays. It established that the determination of sale consideration for capital gains should reflect the actual transaction value received by the taxpayer, not the value realized in subsequent transactions by third parties. The Tribunal reinforced the principle that investment in a new residential property within the stipulated period qualifies for Section 54F deduction, even if construction is delayed. It clarified that interest expenses under Section 57 must be directly linked to income generation, with a focus on actual fund utilization. The appeal was partly allowed, with directions for the AO to reassess certain calculations based on the Tribunal's findings.
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