2015 (6) TMI 563 - AT - Income Tax

Deduction under section 54F - CIT(A) allowed claim - Held that - Assessing Officer has made disallowance of claim of deduction under section 54F of the Act without making necessary verification. Before the ld. CIT(A), the assessee has filed enormous evidence in order to establish that the alleged properties held by the assessee were not of residential nature, as they were used for commercial purposes. Revenue has not brought anything on record to controvert the evidence produced by the assessee before the ld. CIT(A) and also before us. The evidence filed before the ld. CIT(A) is also available on record and from its careful perusal we find that these properties are of commercial in nature. Therefore, it cannot be held that the assessee owns more than one residential house at the time of purchase of new residential house out of sale proceeds received from his capital asset at Mumbai. - Decided against revenue. Disallowance of deduction of ₹ 30 lakhs paid to the seller through cheque for delay in execution of sale deed and handing over of possession within a specified period as per memorandum of understanding - Held that - Undisputedly there was a clause in the agreement to sell that the assessee would pay ₹ 30 lakhs to the seller if the possession is delayed. The explanation has furnished for the delay in handing over the possession to the seller for which assessee has paid ₹ 30 lakhs, therefore, the payment is compensatory in nature and is a part of sale transaction. Had it not been paid, the deal would not have been materialized. Therefore, the payment of ₹ 30 lakhs is an allowable deduction from sale consideration. The lower authorities have looked this payment from a different angle and treated it to be penal in nature; whereas the payment was made for the delay in handing over the possession. Since it was compensatory in nature, the same is allowable for deduction. We accordingly set aside the order of the ld. CIT(A) and direct the Assessing Officer to allow deduction of ₹ 30 lakhs against sale consideration.- Decided in favour of assessee.

Summary

Issues Involved:
1. Deduction under section 54F of the Income-tax Act, 1961.
2. Deduction of Rs. 30 lakhs as penal charges for late possession.
3. Computation of long-term capital gain as per provisions of section 48(1) of the Act.

Issue-wise Detailed Analysis:

1. Deduction under section 54F of the Income-tax Act, 1961:

The Revenue appealed against the order of the CIT(A) directing the Assessing Officer to allow the deduction under section 54F of the Income-tax Act, 1961. The assessee claimed this deduction on the capital gain earned from the sale of a property in Mumbai, which was invested in purchasing a residential house in Kanpur. The Assessing Officer disallowed the deduction, arguing that the assessee already owned multiple residential properties, violating clause (1)(a) and (1)(b) of section 54F.

The CIT(A) allowed the deduction, concluding that the properties in question were commercial, not residential. The assessee provided substantial evidence, including certificates from various government departments, valuation reports, and wealth tax returns, proving the commercial use of the properties. The Tribunal upheld the CIT(A)'s decision, noting that the Assessing Officer failed to verify the nature of the properties and relied solely on the sale deed's narration. The Tribunal confirmed that the properties were commercial and allowed the deduction under section 54F.

2. Deduction of Rs. 30 lakhs as penal charges for late possession:

The assessee claimed a deduction of Rs. 30 lakhs paid to the seller for the delay in executing the sale deed and handing over possession of the property. The Assessing Officer and CIT(A) disallowed this deduction, treating it as a penal charge rather than compensatory. However, the Tribunal found that the payment was compensatory, as it was stipulated in the agreement to sell that the assessee would pay Rs. 30 lakhs if possession was delayed. The Tribunal noted that this payment was essential for the sale transaction to materialize and was, therefore, part of the sale consideration. Consequently, the Tribunal set aside the CIT(A)'s order and directed the Assessing Officer to allow the deduction of Rs. 30 lakhs.

3. Computation of long-term capital gain as per provisions of section 48(1) of the Act:

The assessee challenged the CIT(A)'s order for not allowing the deduction of Rs. 30 lakhs and the computation of long-term capital gain as per section 48(1) of the Act. The Tribunal addressed this issue by acknowledging the compensatory nature of the Rs. 30 lakhs payment and allowing it as a deduction from the sale consideration. This adjustment affected the computation of the long-term capital gain, aligning it with the provisions of section 48(1).

Conclusion:

The Tribunal dismissed the Revenue's appeal and allowed the assessee's cross objection. The Tribunal confirmed the CIT(A)'s decision regarding the deduction under section 54F, recognizing the commercial nature of the properties. Additionally, the Tribunal allowed the deduction of Rs. 30 lakhs paid as compensation for the delay in possession, directing the Assessing Officer to adjust the computation of long-term capital gain accordingly. The judgment was pronounced in the open court.