2017 (9) TMI 961 - AT - Income Tax

Benefit of deduction u/s 54F - construction of a residential house completion by the assessee - absence of completion certificate - whether the absence of deposit of unutilised net consideration in a specific bank account as is required u/s 54F(4)should the Assessee be denied the benefit of deduction u/s 54F of the Act? - Held that - The construction of a residential house was completed by the assessee within the period of three years from the date of transfer as is required u/s 54F(1) of the Act. The absence of completion certificate cannot be a ground to deny the benefit of deduction u/s 54F of the Act. CIT vs Sardarmal Kothari (2008 (6) TMI 15 - MADRAS HIGH COURT) in the context of deduction u/s 54F of the Act came to the conclusion that it would be enough if the assessee establishes that he has invested the entire net consideration within the stipulated period. Hon ble Karnataka High Court in the case of CIT Bangalore vs K.Ramachandra Rao 2015 (4) TMI 620 - KARNATAKA HIGH COURT held that if the assessee invests the entire consideration in construction of the residential house within three years from the date of transfer he cannot be denied deduction u/s 54F of the Act on the ground that he did not deposit the said amount in capital gain account scheme before the due date prescribed u/s 139(1) of the Act. As the assessee invested the sale consideration in construction of a residential house within three years from the date of transfer we are of the view that the assessee should be given the benefit of deduction u/s 54F of the Act on the sum of Rs. 16, 50, 000/- also and cannot be denied the benefit the said benefit for the reason that he had not complied with the requirements of Sec.54F(4) of the Act. Thus in effect the assessee would be entitled to deduction u/s.54F of the Act of Rs. 20, 31, 839/- viz. for the investment of Rs. 3, 50, 000/- in purchase of the land Rs. 31, 839/- stamp duty and registration charges and Rs. 16, 50, 000/- utilised for construction of a residential house within this period specified in section 54F(1) of the Act. The AO is accordingly directed to allow deduction u/s 54F of the Act a sum of Rs. 20, 31, 839/-. Appeal of the assessee partly allowed.

Summary

Issues Involved:
1. Justification of addition of Rs. 21,00,000/- under section 50C.
2. Entitlement to full exemption under section 54F of Rs. 20,31,839/-.

Detailed Analysis:

Issue 1: Justification of Addition under Section 50C
The Assessee contested the addition of Rs. 21,00,000/- made by the Assessing Officer (AO) under section 50C of the Income Tax Act, 1961, which mandates adopting the stamp duty valuation as the full value of consideration received on transfer for the purpose of computation of long-term capital gain. The Assessee sold 16 cottahs of land for Rs. 20,00,000/-, but the stamp duty valuation was Rs. 41,00,000/-. The AO computed the long-term capital gain based on the stamp duty valuation, resulting in a higher taxable amount.

Issue 2: Entitlement to Full Exemption under Section 54F
The core issue was whether the Assessee should be given the full benefit of deduction under section 54F of the Income Tax Act, 1961. The Assessee claimed exemption of Rs. 20,31,839/- for investments made in purchasing land and constructing a residential house. However, the AO allowed only Rs. 6,10,000/- as deduction, which included Rs. 3,50,000/- for the land purchase and Rs. 2,60,000/- deposited in the Capital Gains Account Scheme by the due date.

Analysis of Section 54F:
- Section 54F(1): Allows deduction if the net consideration is invested in purchasing or constructing a residential house within specified periods.
- Section 54F(4): Requires unutilized net consideration to be deposited in a specified bank account by the due date for filing the return under section 139(1).

The Assessee purchased land for Rs. 3,50,000/- and paid stamp duty and registration charges of Rs. 31,839/-. The remaining unutilized net consideration of Rs. 16,50,000/- was not deposited in a specified bank account by the due date, which was 31.07.2004. The AO and CIT(A) allowed the deduction for the land purchase but disallowed the remaining amount due to non-compliance with section 54F(4).

Tribunal's Findings:
- The Tribunal noted that the Assessee had indeed invested the unutilized net consideration in constructing a residential house within the stipulated three-year period.
- The Tribunal referenced the Karnataka High Court decision in CIT vs K. Ramachandra Rao, which held that if the entire consideration is invested in constructing a residential house within three years, the benefit of section 54F cannot be denied merely for not depositing the amount in the specified account by the due date.

Conclusion:
The Tribunal concluded that the Assessee should be given the benefit of deduction under section 54F for the entire amount of Rs. 20,31,839/-, including Rs. 3,50,000/- for land purchase, Rs. 31,839/- for stamp duty and registration, and Rs. 16,50,000/- used for construction. The AO was directed to allow the full deduction claimed by the Assessee.

Final Judgment:
The appeal of the Assessee was partly allowed, granting the full deduction of Rs. 20,31,839/- under section 54F. The Tribunal directed the AO to adjust the computation accordingly. The order was pronounced on 13.09.2017.