2023 (5) TMI 580 - AT - Income Tax

Deduction u/s 54F - Denial of deduction as mount of Sale Consideration was not deposited in the Capital Gains Account Scheme and the claim of 54F is not applicable as the construction has not been completed - HELD THAT - In the instant case, undisputedly, the amounts for purchase of property and the construction thereon, were paid duly within the relevant period, as prescribed under law and that too from the Capital Gains Account. The said fact of the payments being made, has been admitted by the CIT(A), which is evident from the perusal of his order. In such circumstances, the disallowance of the entire exemption only because the construction was not completed is without any basis and/or merit and the said action of the Ld. CIT(A) deserves to be quashed. CIT(A) erred in disallowing the claim by making factually incorrect observations that the assessee had not deposited any amount in the capital gains scheme account whereas the amounts were duly deposited in the capital gains scheme account and duly utilized from the said account only. CIT(A) further erred to even take cognizance of the capital gains account which was placed on record. Owing to availability of sufficient evidences on record, we also hold that the stamp duty registration cost are hereby allowed. Appeal of assessee allowed.

Summary

Issues involved: Appeal against order of CIT(A) regarding deduction u/s 54F, enhancement of income, disallowance of expenses, and disallowance of deduction u/s 54F.

Deduction u/s 54F:
The assessee sold a plot of land and invested in a residential house for which deduction u/s 54F was claimed. The AO disallowed indexed cost of acquisition and expenses. CIT(A) enhanced income and disallowed entire deduction u/s 54F due to non-completion of construction within 3 years and non-deposit in Capital Gains Account Scheme. Tribunal held that payments were made within the prescribed period from Capital Gains Account, so disallowance was baseless. Cited case laws supported that completion of construction within 3 years is not mandatory for claiming deduction u/s 54F if substantial investment is made. Tribunal found CIT(A) erred in disallowing the claim and allowed the appeal.

Enhancement of Income:
CIT(A) enhanced income from capital gains due to non-completion of construction within 3 years. Tribunal held that CIT(A)'s observation of non-deposit in Capital Gains Account was factually incorrect as amounts were deposited and utilized from the account. Tribunal allowed the appeal based on sufficient evidence on record.

Disallowance of Expenses:
CIT(A) disallowed expenses incurred for purchase of a new residential unit. Tribunal found that stamp duty registration costs were duly submitted as evidence, and thus allowed the expenses.

Conclusion:
Tribunal allowed the appeal, holding that disallowance of deduction u/s 54F was unwarranted as payments were made within the prescribed period, and completion of construction within 3 years is not mandatory. The CIT(A)'s enhancement of income and disallowance of expenses were also overturned based on factual inaccuracies and availability of evidence. The appeal was allowed on 12/05/2023.