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2019 (6) TMI 349 - AT - Income TaxEligible for deduction u/s. 54F - disallowing the construction cost on the presumption that the same is allowable at the time of calculating capital gains as cost of improvement - HELD THAT - The assessee is eligible for deduction u/s. 54F and purchased the plots and constructed residential dwellings on those plots, we hereby hold that the assessee is eligible for the deduction and confirm the order of the CIT(A) to that extent. At the same time, we are not in support of the decision of the CIT(A) wherein the cost of the construction claimed by assessee has not been allowed and directed the same to be treated as cost of improvement. The decision of the CIT(A) is contrary to the provisions of section 54F (1), wherein the capital gains can be utilized for either construction or purchase of house. Since in this case, the amount has been utilized for the construction of the house, the amount is eligible for deduction u/s 54F in accordance with law. - Decided in favour of assessee.
Issues Involved:
1. Disallowance of construction cost as a deduction under Section 54/54F of the Income Tax Act. 2. Lack of opportunity for the appellant to represent the case before the CIT(A). 3. Validity and jurisdiction of the impugned assessment. Detailed Analysis: 1. Disallowance of Construction Cost: The appellant argued that the construction cost of ?24,35,431 should be allowed as a deduction under Section 54/54F of the Income Tax Act if incurred before filing the return of income. The CIT(A) disallowed this cost, presuming it should be considered as a cost of improvement for calculating capital gains. The appellant sold a vacant plot for ?1,70,65,000 and purchased three residential houses. The Assessing Officer (AO) denied the deduction under Section 54F, stating that the deduction was available for only one residential house, not for three units. The appellant cited various judgments, including the Delhi High Court's decision in CIT vs. Gita Duggal, which supports the interpretation that multiple residential units used as a single house qualify for deduction under Section 54F. The Tribunal agreed with the appellant, stating that multiple units forming a single residential house meet the requirements of Section 54F. Thus, the construction cost should be allowed as a deduction. 2. Lack of Opportunity to Represent: The appellant contended that the CIT(A) made the disallowance without providing an opportunity to represent the case. The Tribunal noted that the case was adjourned multiple times, and the appellant did not attend the hearings. However, the Tribunal adjudicated the matter on merits, considering the submitted facts and arguments. 3. Validity and Jurisdiction of the Assessment: The appellant claimed that the assessment was invalid and without jurisdiction as it did not comply with the provisions of the Income Tax Act. The Tribunal did not find merit in this argument, as the assessment proceedings followed the due process. The Tribunal focused on the substantive issues regarding the eligibility for deduction under Section 54F and the treatment of construction costs. Conclusion: The Tribunal concluded that the appellant is eligible for the deduction under Section 54F for the construction costs incurred. The decision of the CIT(A) to treat the construction cost as a cost of improvement was contrary to the provisions of Section 54F. The Tribunal allowed the appeal, confirming the appellant's eligibility for the deduction and directing that the construction costs be considered under Section 54F. Order: The appeal of the assessee was allowed, and the order was pronounced in the open court on 03/06/2019.
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