2013 (6) TMI 219 - AT - Income Tax

Exemption claimed u/s 54 denied - as per CIT(A) since the assessee has made payment for purchase of the plot from a different source and has no actually utilised the sale consideration received from transfer of the original asset - Held that - As decided in Muneer Khan Versus ITO 2010 (8) TMI 752 - ITAT HYDERABAD provision contained u/s. 54 is pari materia with S.54F. Therefore, following the aforesaid ratio laid down to hold that exemption claimed by the assessee under S.54 cannot be denied on the ground that the assessee has not utilised the sale consideration received from the sale of flats itself, in purchasing the plot. Law is well settled by the judicial precedents that investment in purchase of pot for construction of house would entitle an assessee to claim exemption u/s.54 or 54F. Board s circular No.667 dated 18.10.1993 also says so. In favour of assessee. Whether the assessee has constructed the residential house within a period of three years as stipulated in S.54 - Held that - Neither the AO nor the CIT(A) has dealt this fact. While the CIT(A) has disallowed the claim of the assessee on the ground that the sale consideration received on transfer of assets has not been utilized in purchasing the plot, AO has disallowed it by observing that the assessee has not purchased a residential house within one year. It is categorical submission of assessee that the assessee has constructed the residential house within the stipulated period of three years as per S.54 and necessary information and evidences were also produced before AO with bank account and letters submitted. In the absence of any material to the contrary brought on record by the Revenue, inclined to accept the assessee s claim that the construction was completed within the stipulated period of three years as per Section 54. In favour of assessee. Method of computation of long term capital gains adopted by AO challenged - restriction of the cost of construction and cost of improvement to Rs.3 lakhs as against Rs. 6 lakhs claimed by the assessee - Held that - As it is evident from the orders of the revenue authorities that the assessee has not produced enough supporting evidence to prove that she has in fact incurred expenditure of Rs.6 lakhs towards cost of construction and cost of improvement, the allowance of 50% of cost of construction at Rs.3 lakhs is reasonable, and no interference is called for. Against assessee. Disallowance of expenditure of digging of borewell while computing the cost of acquisition - Held that - In the absence of any evidence in support of her claim in this behalf no infirmity in the action of the revenue authorities in rejecting the claim of the assessee. Against assessee. Disallowance of cost of boundary wall as part of construction cost of the new property - CIT(A) and AO have rejected the assessee s claim only on the ground that the construction made was not out of sale proceeds of the flats. Held that - As for claiming exemption under S.54 it is not necessary that the investment in new asset should be out of the sale consideration received from transfer of the original asset only. Thus the assessee is entitled for deduction of Rs.3 lakhs, being expenditure incurred on construction of compound wall. In favour of assessee.

Issues Involved:
1. Disallowance of exemption claimed under Section 54 of the Income Tax Act.
2. Method of computation of long-term capital gains.
3. Disallowance of expenditure incurred towards digging of borewell.
4. Non-allowance of the cost of boundary wall as part of construction cost of the new property.

Detailed Analysis:

1. Disallowance of Exemption Claimed Under Section 54 of the Income Tax Act:
The assessee claimed an exemption under Section 54 for Rs. 69,61,500 invested in purchasing land for constructing a house. The Assessing Officer (AO) disallowed this exemption, noting that the property purchased was an open plot with an old structure, not a residential house. The AO allowed exemption only for Rs. 64,05,000 deposited in the capital gains account scheme. The CIT(A) upheld the AO's decision, stating that the payment for the plot was made from a different source, not from the sale consideration of the original asset. The Tribunal, however, found no such precondition in Section 54 that the investment in a new asset should be out of the sale consideration received from the old asset. The Tribunal cited previous decisions, including Muneer Khan v. ITO and J.V. Krishna Rao v. Dy. CIT, which supported the view that the source of funds for the new asset is irrelevant as long as the investment is made within the specified time. The Tribunal concluded that the assessee is entitled to the exemption under Section 54, as the law does not require the investment to be made from the sale proceeds of the original asset.

2. Method of Computation of Long-Term Capital Gains:
The assessee challenged the AO's method of restricting the cost of construction and improvement to Rs. 3 lakhs instead of Rs. 6 lakhs claimed. The Tribunal upheld the AO's decision, noting that the assessee failed to provide sufficient evidence to support the higher claim. Therefore, the allowance of 50% of the claimed amount was deemed reasonable.

3. Disallowance of Expenditure Incurred Towards Digging of Borewell:
The assessee's claim for expenditure on digging a borewell was disallowed due to a lack of supporting evidence. The Tribunal upheld this disallowance, finding no error in the revenue authorities' decision.

4. Non-Allowance of the Cost of Boundary Wall as Part of Construction Cost of the New Property:
The AO and CIT(A) had disallowed the Rs. 3,00,000 claimed for the construction of a boundary wall, stating it was not out of the sale proceeds of the flats. The Tribunal disagreed, reiterating that for claiming exemption under Section 54, it is not necessary that the investment be made from the sale consideration of the original asset. The Tribunal allowed the deduction for the boundary wall expenditure.

Conclusion:
The Tribunal allowed the appeal partly, granting the exemption under Section 54 for the investment in land and the cost of the boundary wall, but upheld the AO's decisions regarding the method of computation of long-term capital gains and the disallowance of the borewell expenditure.

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