2020 (10) TMI 661 - AT - Income Tax

LTCG - Benefit of deduction u/s. 54 denied - CIT(A) concluded that Assessee did not construct a residential house within a period of 3 years from the date of transfer of the original asset, on the basis that the photograph filed as evidence does not reveal that the construction of the house was on the plot of land purchased by the Assessee and that there was no completion certificate produced to substantiate the claim of the Assessee - HELD THAT - CIT(A) has ignored the other evidence on record which prove construction and completion of construction of a residential house. Merely because the sale deed had not been executed or that construction is not complete and it is not in a fit condition to be occupied does not disentitle the assessee to claim s. 54F relief. As in SAMBANDAM UDAYKUMAR 2012 (3) TMI 80 - KARNATAKA HIGH COURT followed similar decision rendered by the Hon ble Madras High Court in the case of Sardarmal Kothari 2008 (6) TMI 15 - MADRAS HIGH COURT . We are therefore of the view that even on the basis of non-completion of construction of the new asset within the period of 3 years, the deduction u/s.54 of the Act cannot be denied to the Assessee. In the present case, we are satisfied on the basis of evidence produced by the assessee that a building had come up over the site purchased by assessee and the purchase of site and cost of construction was much more than the capital gain arrived at by the assessee on sale of ancestral house. CIT(Appeals) has gone by the fact that there was absence of Occupation Certificate but this will not be a ground to deny the claim of assessee for deduction u/s. 54 of the Act, as other evidence filed by the assessee sufficiently demonstrates that assessee has constructed a residential house within the period of stipulated by law. The findings of the CIT(Appeals) in this regard are very vague and cannot be the basis to deny the claim of assessee for deduction u/s. 54 of the Act. - Decided in favour of assessee.

Summary

Issues: Denial of deduction under Section 54 of the Income Tax Act, 1961.

Analysis:
1. The main issue in this case pertains to the denial of deduction under Section 54 of the Income Tax Act, 1961. The Appellate Tribunal had to determine whether the assessee was entitled to the benefit of deduction under this provision.

2. The assessee claimed the deduction based on the construction of a residential house within three years from the date of transfer of the original asset. The evidence presented included the purchase of a residential site and the subsequent construction of a house, supported by documents such as the sanctioned building plan, property tax receipts, and electricity usage evidence.

3. The Assessing Officer (AO) recalculated the long-term capital gains and made an addition under "Income from Other Sources" due to a variance in the investment amount in the new house compared to the capital gains. The AO did not deny the deduction under Section 54 but added the difference as income from other sources.

4. The CIT(Appeals) upheld the AO's decision to deny the deduction under Section 54, despite deleting the addition made under "Income from Other Sources." The CIT(A) concluded that the construction of the residential house was not completed within the stipulated period, based on the evidence provided, including a photograph and a letter from the Executive Engineer.

5. On appeal to the Tribunal, it was argued that the CIT(A) erred in denying the deduction solely based on the absence of an Occupation Certificate and the completion certificate. The Tribunal referred to relevant case law and emphasized that completion of construction or occupation is not a mandatory requirement for claiming the deduction under Section 54.

6. The Tribunal analyzed the evidence presented by the assessee, including the construction of a building on the purchased site and the substantial investment in the new property. The Tribunal found that the absence of an Occupation Certificate should not be a ground to deny the deduction under Section 54, especially when other evidence clearly indicated the construction of a residential house within the specified period.

7. Ultimately, the Tribunal held that the assessee was entitled to the deduction under Section 54, and consequently, no long-term capital gains were eligible for taxation. The addition made by the AO was deleted, and the appeal of the assessee was allowed.

This detailed analysis highlights the key legal arguments and decisions made by the Appellate Tribunal in the case concerning the denial of deduction under Section 54 of the Income Tax Act, 1961.