2015 (1) TMI 49 - AT - Income Tax

Disallowance u/s 54F - failure to produce evidence to show that it is not renovation but construction of a new house - Held that - The assessee has allegedly utilized the Long Term Capital Gain arising from the sale of shares towards the construction of a new residential house after demolition of old building on the plot-in-question. The assessee has claimed exemption u/s.54F on the ground that the assessee has invested Long Term Capital Gains arising from sale of shares towards construction of a new house within the prescribed period as mentioned in the Act. However, the contentions of the assessee has been rejected by the authorities below for the reason that the assessee has not placed on record the approved building plan from the Municipal Corporation. The assessee has admitted the fact that the new residential house has been constructed without the approval of the Municipal Corporation. The provisions of section 54F mandates the construction of a residential house, within the period specified. However, there is no condition that the building plan of the residential house constructed should be approved by the Municipal Corporation or any other competent authority. If any person constructs a house without approval of building plan, he will be raising construction at his own risk and cost. As far as for availing exemption u/s.54F, approval of building plan is not necessary. The approved building plan, certificate of occupation etc. are sought to substantiate the claim of new construction. In the present case, the fact that the assessee has raised new construction is evident from the interim order issued by the Corporation of Salem. - it is evident that the assessee has put up a new construction in place of old residential building, thus, the assessee is entitled to claim exemption u/s.54F. The impugned order is set aside - Decided in favour of assesse.

Summary

Issues involved:
1. Claim of exemption u/s.54F of the Income-tax Act, 1961 for construction of a new residential house without approved building plan.

Detailed Analysis:
The appeal was filed against the order of the Commissioner of Income Tax (Appeals) for the Assessment Year 2006-07, where the assessee's claim of exemption u/s.54F was disallowed, resulting in an addition of Rs. 3,45,000. The Tribunal remitted the matter back to the Assessing Officer to determine if the construction was a case of renovation or a new construction after demolition. The Assessing Officer subsequently disallowed the claim of exemption, making an addition of Rs. 3,33,984 on account of Long Term Capital Gain. The CIT (Appeals) upheld this decision, stating that without an approved plan for the new construction, the exemption could not be claimed u/s.54F.

The assessee argued that the sale proceeds of shares were used to construct a new residential house after demolishing the old one, claiming exemption u/s.54F. Although the new house was not approved by the Municipal Corporation, an interim order from the Salem Corporation confirmed the new construction. The Revenue contended that without an approved building plan, it could be considered renovation, not eligible for exemption u/s.54F.

The Tribunal examined the evidence and submissions. It noted that the assessee did not possess a plot with an existing residential building and had utilized Long Term Capital Gain for the new construction. While the building plan was not approved, the interim order from the Corporation of Salem confirmed the new construction. The Tribunal emphasized that section 54F does not mandate an approved building plan for exemption eligibility, and the new construction was evident from the interim order.

In conclusion, the Tribunal held that the assessee had indeed constructed a new residential house, entitling them to claim exemption u/s.54F. The impugned order disallowing the exemption was set aside, and the appeal of the assessee was allowed.