2022 (4) TMI 677 - AT - Income Tax

Disallowance of deduction u/s 54F - assessee has converted his capital asset into stockin- trade and accrued capital gains which he invested in construction of residential unit and claimed exemption under section 54F - As per AO assessee has failed to substantiate his claim with supporting evidence to prove that both the properties are same on which the construction of residential house was carried out. Also assessee has failed to prove that he does not have any other residential property - whether the assessee can claim deduction u/s 54F in more than one year when he invests sale considerations received from sale of different capital assets in construction of one residential unit over the years when all other conditions are satisfied? - HELD THAT - Deduction under section 54F of the Act is available in respect of capital gains arising from sale of more than one long term capital assets, not being residential house, against the construction or purchase of one residential house. We note that jurisdictional Bench of ITAT, Ahmedabad 2018 (12) TMI 822 - ITAT AHMEDABAD has held that deduction u/s 54F is allowable on identical facts. Thus, the deduction u/s 54F of the Act claimed by assessee is allowable and therefore, we do not find any infirmity in the order passed passed by ld CIT(A). That being so, we decline to interfere with the order of Id. CIT(A) in deleting the aforesaid additions. His order on this addition is, therefore, upheld and the grounds of appeal of the Revenue are dismissed.

Summary

Issues:
Appeal against deletion of addition made by assessing officer on account of disallowance of deduction u/s 54F of the Income Tax Act, 1961.

Detailed Analysis:
The appeal before the Appellate Tribunal ITAT Surat concerned the assessment year 2009-10 and was filed by the Revenue against the order passed by the Commissioner of Income Tax (Appeals). The primary issue revolved around the deletion of an addition of ?22,55,830 made by the assessing officer on account of disallowance of deduction under section 54F of the Act. The assessing officer had disallowed the deduction on the grounds that the assessee had not fulfilled the conditions of Section 54F. The assessee, engaged in the business of developing and construction, had claimed exemption under Section 54F for constructing a residential house out of capital gains. The assessing officer reopened the case under Section 147, questioning the eligibility of the assessee for the deduction claimed. Despite the assessee's explanations and submissions, the assessing officer disallowed the deduction, leading to the appeal.

The crux of the matter was whether the assessee could claim deduction under Section 54F in more than one year when investing sale proceeds from different capital assets in the construction of a single residential unit over multiple years, provided all other conditions were met. The Tribunal noted that the deduction under Section 54F is allowable when the assessee invests sale proceeds of the original asset in a residential unit within the specified time frame and does not own more than one residence at the time of transfer. The Tribunal referred to a judgment of the Coordinate Bench of ITAT Ahmedabad in a similar case and upheld that deduction under Section 54F can be claimed for capital gains arising from the sale of multiple assets against the construction of one residential house, subject to fulfilling other conditions.

The Tribunal emphasized that the legislative intent behind Section 54F was to encourage taxpayers to convert unproductive assets into residential houses, provided certain conditions were met. The Tribunal rejected the Revenue's contention that the deduction should only apply to one transaction of transfer, as it would limit the purpose of the provision. The Tribunal highlighted that a broader interpretation of the provision was necessary to achieve the intended purpose of the deduction. Ultimately, the Tribunal upheld the order of the Commissioner of Income Tax (Appeals) in deleting the addition made by the assessing officer, stating that the deduction claimed by the assessee under Section 54F was allowable. Consequently, the appeal of the Revenue was dismissed.

In conclusion, the Tribunal's decision clarified the eligibility of the assessee to claim deduction under Section 54F for capital gains arising from the sale of multiple assets against the construction of a single residential unit, provided all conditions were satisfied. The judgment underscored the legislative intent behind the provision and emphasized the need for a broader interpretation to achieve the intended purpose of encouraging taxpayers to convert assets into residential houses.