2015 (9) TMI 1178 - AT - Income Tax

Eligibility of deduction u/s 54F - CIT(A) allowed relief - Held that - This Tribunal in catena of decisions has held that the thrust of the section 54F is on the investment of the net consideration received on the sale of the original asset and start of the construction of a new residential house and does not prescribe completion of construction of the residential house within the period of three years. This view has been held by B Bench of the Tribunal at Chandigarh in the case of Smt. Rajneeth Sandhu vs. DCIT (2010 (7) TMI 806 - ITAT CHANDIGARH ). The Hon ble Karnataka High Court in the case of CIT vs. Sambandham Uday Kumar (2012 (3) TMI 80 - KARNATAKA HIGH COURT) has extensively considered the issuen the instant case, the material on record discloses that the assessee had invested ₹ 2,16,61,670/- as on 31.10.2006 within twelve months from the date of realization of sale proceeds of shares. The developer acknowledging the said amount has given particulars of the stage of construction. According to him, only minor fittings like window shutters and some electrical work were required to be made. In fact, the report of the inquiry conducted by the Department also discloses the flooring work, electrical work, fitting of door and window shutters were still pending. The assessee has produced before the authorities the registered sale deed dated 7.11.2009 showing the transfer of the property in his favour. The said document discloses marble tiles flooring has been done, electricity, water and sanitary connections have been given, wood used is teak in respect of doors and windows. The assessee has been put in possession of the property and he is in occupation. Therefore, the assessee has invested the sale consideration in acquiring a residential premises and has taken possession of the residential building and is living in the said premises. The object of enacting section 54 of the Act i.e., to encourage investment in a residential building is completely fulfilled. Thus justified in extending the benefit of section 54F of the Act to the assessee and the said order does not suffer from any infirmity which calls for interference - Decided in favour of assessee. Addition of the unexplained investment - CIT (A) held that the addition made by the AO in the hands of the assessee u/s 68 is to be assessed in the hands of the assessee s wife i.e. Smt. K. Saritha - Held that - Admittedly the sum of ₹ 22.00 lakhs has been advanced by Mr. I.V. Satish to the assessee s wife who has invested the same for purchase of a site. No doubt Mr. Satish is the contractor who has received an advance of ₹ 1.00 crore from the assessee for construction of the building, but as rightly observed by the CIT (A), the sum of ₹ 22.00 lakhs advanced by Mr. I.V. Satish is not to the assessee, but to the assessee s wife, who is an independent assessee. Since the investment made in the site is by the wife of the assessee, as rightly held by the CIT (A), the said amount, if at all is to be brought to tax, it can be only in the hands of the assessee s wife and not in the assessee s hands. Therefore, we see no reason to interfere with the order of the CIT (A) on this issue as well. - Decided against revenue.

Summary

Issues Involved:
1. Deduction under Section 54F of the Income Tax Act.
2. Addition of unexplained investment under Section 68 of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Deduction under Section 54F of the Income Tax Act:

The Revenue was aggrieved by the CIT (A)'s decision to allow the assessee a deduction under Section 54F of the Income Tax Act, despite the construction of the house not being completed within three years from the date of transfer of the original asset. The assessee had sold land and claimed a deduction for the long-term capital gains by investing in the construction of a new residential house. However, the Assessing Officer (AO) observed that the house was not fit for habitation due to incomplete infrastructure, such as roads, electricity, and drainage systems, and thus disallowed the deduction.

The Tribunal noted that the primary focus of Section 54F is on the investment of the net consideration received from the sale of the original asset into the construction of a new residential house, rather than the completion of the construction within three years. This interpretation aligns with the decisions of various judicial authorities, including the 'B' Bench of the Tribunal at Chandigarh in the case of Smt. Rajneeth Sandhu vs. DCIT and the Hon'ble Karnataka High Court in CIT vs. Sambandham Uday Kumar. The Tribunal emphasized that the essence of Section 54F is the investment in a residential house, and the completion or occupation of the house within the stipulated period is not a requirement.

The Tribunal upheld the CIT (A)'s decision, stating that the assessee had indeed invested the entire net sale consideration in the construction of a residential house, and thus, the deduction under Section 54F was rightly allowed.

2. Addition of Unexplained Investment under Section 68 of the Income Tax Act:

The second issue involved the addition of Rs. 22.00 lakhs as unexplained investment under Section 68 of the Income Tax Act. The AO had treated this amount as unexplained investment in the hands of the assessee, despite the assessee providing a confirmation letter from Shri I.V. Satish, who stated that he had advanced the amount on behalf of the assessee's wife for the purchase of a site.

The Tribunal found that the amount in question was advanced by Mr. I.V. Satish to the assessee's wife, who is an independent assessee. The CIT (A) had rightly observed that since the investment was made by the assessee's wife, any tax implications should be considered in her hands and not in the hands of the assessee. The Tribunal agreed with the CIT (A)'s decision and saw no reason to interfere with it.

Conclusion:

The Tribunal dismissed the Revenue's appeal, upholding the CIT (A)'s decisions on both issues. The deduction under Section 54F was allowed as the investment in the construction of the residential house was made within the stipulated period, and the addition of Rs. 22.00 lakhs as unexplained investment was rightly attributed to the assessee's wife. The order was pronounced in the Open Court on 23rd September 2015.