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TMI Blog2015 (9) TMI 123X X X X Extracts X X X X X X X X Extracts X X X X ..... 40,000/- was invested in prescribed modes to claim exemption u/s 54F of the Income Tax Act, 1961 (hereinafter called the 'Act'). It may also be mentioned that due to some computational error on the part of the assessee, the total amount invested and claimed as exempt u/s 54 of the Act was taken at Rs. 1,16,40,000/-and this amount claimed as exempt is in dispute before us. During the course of assessment proceedings for the assessment year 2008-09 and while examining the validity of claim of exemption u/s 54, the AO called for the Inspector's Report on the issue of completion of construction of house property. The ITI vide his report dated 10.11.2010 submitted that the construction of the house was at a preliminary stage only and that in his opinion , it may take a long time to complete the construction. Based on the report of the ITI, the AO concluded that the construction of the new residential house was not complete even on 10.11.2010. The AO was of the view that since the transfer of property had taken place on 11th May 2007 (relevant to AY 2008-09), in order to avail the exemption u/s 54 of the Act, the new residential house should have been constructed within three years from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te within the stipulated time. The learned AR of the assessee placed reliance on the judgment of the Hon'ble Madras High Court rendered in the case of CIT vs Sardarmal Kothari & Another 302 ITR 286 (Mad.). wherein the Hon'ble Madras High Court has held that where the assessee had admittedly purchased land by investing the capital gains and had constructed residential house, non-completion of construction within three years was immaterial. The Learned AR for the assessee also drew our attention to Pages 4 to 10 of the Paper Book filed by him which contain a copy of the Valuation Report dated 21.07.2010 in which the estimated cost of construction has been worked out at Rs. 51,61,000/-. 6. It will also be worthwhile to reproduce section 54 of the Act which reads as under: "Profit on sale of property used for residence. 54. [(1)] [ [Subject to the provisions of sub-section (2), where, in the case of an assessee being an individual or a Hindu undivided family], the capital gain arises from the transfer of a long-term capital asset [***], being buildings or lands appurtenant thereto, and being a residential house, the income of which is chargeable under the head "Income from house pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any, already utilised by the assessee for the purchase or construction of the new asset together with the amount so deposited shall be deemed to be the cost of the new asset : Provided that if the amount deposited under this sub-section is not utilised wholly or partly for the purchase or construction of the new asset within the period specified in sub-section (1), then,- (i) the amount not so utilised shall be charged under section 45 as the income of the previous year in which the period of three years from the date of the transfer of the original asset expires; and (ii) the assessee shall be entitled to withdraw such amount in accordance with the scheme aforesaid. Explanation.- [Omitted by the Finance Act, 1992, w.e.f. 1-4-1993.] " 7. Reference may also be made here to Circular No. 495, dated 22nd September, 1987 (168 ITR (St.) 87) which contains the Explanatory Notes on the provisions relating to direct taxes as contained in the Finance Act, 1987. Para 26.1 and 26.2 are relevant to the issue involved and are reproduced here under : "26.1 Under the existing provisions of sections 54, 54B, 54D and 54F, longterm capital gains arising from the transfer of any immovable prop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h we respectfully follow. 10. Accordingly, it is our considered opinion that on facts of the case, exemption u/s 54 cannot be denied to the assessee in the year in which the transfer of asset took place as far as the assessee has invested Rs. 54,40,000/- in purchase of land on which the house has been constructed. The issue of disallowance, if any, will have to be considered in the previous year in which the period of three years from the date of the transfer of the original asset expires. Hence, the appeal of the revenue is dismissed on this issue. 11. As far as the second issue of investment of Rs. 63,00,000/- in the Capital Gains Accounts Scheme, 1988 is concerned, it is the contention of the Department that although the initial deposit in the Capital Gains Account Scheme (Savings Account) was made on 18.07.2008 (i.e. before the due date of filing of the return of income), a transfer from such savings account was made to the Fixed Deposit Account under the Capital Gains Account Scheme on 06.08.2008 (i.e. after the due date of filing of return of income). Therefore, since the deposit was made beyond the due date, the AO had rightly denied the exemption u/s 54 of the Act. 12. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome u/s 139(1), does not conform to the parameters laid down in clause 4(4) of the Capital Gains Account Scheme, 1988 (supra) is based on an incorrect interpretation. Since the entire initial deposit in the savings bank (Deposit A account) amounting to Rs. 63,00,000/- was made within the prescribed period, it is immaterial that a further transfer from this account was made to Deposit B account (Fixed Deposit Account) after the prescribed due date, the exemption on this count also cannot be denied to the assessee. Even if the transfer is not as per law in the year of withdrawal from Deposit account A, it can be considered as amount withdrawn and not utilised and addition can be made as per law but in the present year, the exemption cannot be denied. 14. We accordingly hold that the assessee cannot be denied the benefit of exemption u/s 54 on account of Rs. 63,00,000/- deposited in the savings account of the Capital Gains Scheme, 1988 and we dismiss the appeal of the revenue on this issue also. 15. In the result, the appeal of the revenue is dismissed. 16. CO 33/LKW/2014 : Now we take the Cross Objections filed by the assessee. The cross objections are vague and are merely in su ..... X X X X Extracts X X X X X X X X Extracts X X X X
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