2021 (9) TMI 400 - AT - Income Tax

Deduction u/s. 54F - proportionate deduction - Denial of deduction as assessee has not completed the construction within the period of 3 years and accordingly directed the AO to quantify and allow the expenditure incurred by the assessee on the construction of new house u/s. 54F - main grievance of the assessee was that he has invested the net sale consideration received on transfer of capital asset in construction of new residential house however the house was not completed in full respect on this reason deduction u/s. 54F cannot be denied - HELD THAT - In the present case the assessee is entitled for proportionate deduction u/s. 54F to the extent of investment made in construction of new residential house within the period allowed u/s. 54F of the Act i.e. 09.10.2014 though construction was not fully completed. The assessee shall provide necessary evidence in support of the cost of construction incurred upto the date of time allowed u/s. 54F of the Act so as to claim the deduction. This issue is therefore remitted to the Assessing Officer for the limited purpose of computation of deduction u/s. 54F of the Act after examining the cost of construction incurred in construction of new residential house upto 09.10.2014. We may clarify that the investment made by the assessee before one year of sale of original capital asset i.e. before 11.10.2010 cannot be considered for grant of deduction u/s. 54F of the Act.

Summary

Issues:
Rectification of Tribunal's order regarding deduction u/s 54F of the Income Tax Act.

Analysis:
The Department sought rectification of the Tribunal's order, claiming that the assessee was not entitled to deduction u/s 54F as the new house was not constructed within three years from the sale of the original asset. They argued that the unspent net consideration was not invested in the capital gain account scheme before the due date for filing the return. The Tribunal had directed the AO to quantify and allow the expenditure incurred by the assessee on the construction of the new house. The AR contended that except for the mistake in the amount of total cost in the purchase of properties, there was no error in the Tribunal's order.

The Tribunal observed that the assessee was entitled to deduction u/s 54F based on judgments of the jurisdictional High Court. The main issue was that although the assessee had invested part of the net sale consideration in the construction of the new house, it was not completed in full. The Tribunal referred to various judicial pronouncements cited by the assessee to support their claim for deduction u/s 54F. As per section 54F, the assessee must construct a new residential house within three years after the transfer. Even if the house was not fully completed, the assessee was entitled to a proportionate deduction based on their investment.

Citing precedents from the Karnataka High Court, it was established that if the consideration received on the transfer of the capital asset was invested in the construction of a residential house, the assessee could not be denied the benefit under section 54F, even if the construction was not fully completed. The judgment in CIT v. K. Ramachandra Rao clarified that the assessee must invest in the bank account or construct a new residential house within the stipulated period to claim the deduction u/s 54. The Tribunal remitted the issue to the Assessing Officer for computing the deduction based on the cost of construction incurred by the assessee.

The Tribunal clarified that the investment made before one year of the sale of the original capital asset could not be considered for the deduction u/s 54F. Additionally, a typographical error in the order regarding the total cost of properties was rectified. The miscellaneous petition filed by the revenue was partly allowed, and the decision was pronounced on September 6, 2021.