2020 (10) TMI 620 - AT - Income Tax

Disallowance u/s 54F - appellant has not invested the sale proceeds in the capital gains account scheme as required u/s 54F - A.O. had held that assessee had purchased an apartment and not constructed the apartment - assessee did not deposit capital gains amount in the capital gains account scheme before the date of furnishing of return of income u/s 139 - HELD THAT - In the instant case, assessee had expended in July, 2017 i.e. well within period of 3 years from the date of sale of original asset. Therefore, going by the dictum laid down in the case of K. Ramachandra Rao 2015 (4) TMI 620 - KARNATAKA HIGH COURT though the assessee has not deposited capital gains amount in the capital gains account scheme within the prescribed time, since the impugned expenditure was incurred within a period of 3 years from the date of sale of original asset, the assessee was entitled to proportionate deduction u/s 54F of the Act. Assessee has produced proof of payment to M/s. Mas Furniture who also had acknowledged the receipt of the amount and has stated that amount received from assessee was towards furnishing of apartment of the assessee in Sankalap Central Park. The stamp duty is part of the cost of the apartment and expenditure incurred for furnishing the apartment is a cost of improvement. We hold that assessee is entitled to proportionate deduction u/s 54F - Decided in favour of assessee.

Issues:
1. Disallowance of deduction under section 54F of the Income Tax Act.
2. Justification for interest charged under sections 234A, 234B, and 234C of the Act.
3. Consideration for working out the deduction under section 54F of the Act.
4. Application of the time period for claiming deduction under section 54F.
5. Requirement of depositing capital gains amount in the capital gains account scheme.

Detailed Analysis:
1. The appeal addressed the disallowance of a deduction under section 54F of the Income Tax Act. The assessee sold a vacant site and claimed a deduction for acquiring a residential property. The AO and CIT(A) restricted the deduction, citing non-compliance with investment conditions. The Tribunal analyzed relevant judicial precedents, concluding that the assessee's actions qualified for the deduction. The Tribunal allowed the appeal, emphasizing the eligibility for a proportionate deduction based on incurred expenses.

2. The appellant contested the interest charged under sections 234A, 234B, and 234C of the Act. The Tribunal did not delve deeply into this issue in the judgment, as the focus was primarily on the disallowance of the deduction under section 54F. Therefore, no specific ruling or analysis regarding the interest charges was provided in the judgment.

3. The judgment discussed the consideration for working out the deduction under section 54F of the Act. The assessee had incurred expenses post-sale, which the AO initially disregarded. However, the Tribunal recognized these expenses as legitimate costs incurred for improvement. By presenting evidence of payments made for furnishing the apartment and stamp duty, the assessee successfully demonstrated the expenditure, leading to the allowance of a proportionate deduction.

4. The judgment addressed the application of the time period for claiming a deduction under section 54F. The AO had incorrectly applied a two-year period for the deduction, whereas the Tribunal clarified that a three-year period was applicable due to the nature of the transaction being a construction agreement with a builder. Citing relevant judicial decisions, the Tribunal supported the assessee's claim for the extended time period.

5. The judgment also discussed the requirement of depositing the capital gains amount in the capital gains account scheme. The Tribunal referred to judicial precedents to establish that when the entire sale consideration is invested in construction within the stipulated period, the exemption under section 54F cannot be denied based on non-deposit in the capital gains account scheme. As the assessee had expended the amount within three years from the sale date, the Tribunal ruled in favor of granting a proportionate deduction under section 54F.

Overall, the judgment provided a detailed analysis of the issues raised by the appellant, focusing on the eligibility for the deduction under section 54F and the related conditions and timelines. The Tribunal's decision favored the appellant, allowing the appeal and granting the requested deduction based on the incurred expenses and legal interpretations presented during the proceedings.

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