2017 (6) TMI 1352 - AT - Income Tax

Tribunal Remits Appeal for Thorough Examination of Tax Deductions

A. Rajalakshmi Versus The Income Tax Officer, Corporate Ward 5 (4) Chennai

The Tribunal partly allowed the appeal, emphasizing the need for thorough examination of deductions claimed under section 54 of the Income Tax Act and ... Deduction u/s. 54 - assessee has not appropriated towards construction of new residential house as it was not completed - HELD THAT:- In our opinion as held by Hon’ble Karnataka High Court in the case of CIT vs Smt. V.S. Shantha Kumari [2015 (8) TMI 274 - KARNATAKA HIGH COURT] completion of construction within three years was not mandatory and it was necessary that construction should be commenced, it should be proved by the assessee that construction is for residential house. The Hyderabad Bench of the Tribunal in the case of Muneer Khan vs. ITO,[2010 (8) TMI 752 - ITAT HYDERABAD] had held that assessee may use borrowed funds for construction of new residential property and deduction u/s.54 of the Act denied on the reason that assessee used some fund other than consideration received on transfer of capital asset - on that reason deduction u/s.54 of the Act cannot be denied - we remit the entire issue in dispute with regard to Sec. 54 of the Act to the file of the ld. Assessing Officer with a direction to the ld. Assessing Officer to verify whether assessee has actually made investments in construction of new residential property, though it was not completed and decide thereupon. Enhancement of assessment - unexplained investments - payments was not made with reference to the construction of residential house - HELD THAT:- Whether payments made towards construction to other parties on the instruction of assessee’s contractor, it is to be examined by enquiring those parties and it should be seen that it is properly reflected in their books of accounts as per law. Without examining them, it is not possible for us to sustain the addition on this count - are inclined to remit this issue also back to the file of the ld. Assessing Officer for further enquiry. This ground is also remitted to the file of the ld. Assessing Officer for fresh consideration. Issues:1. Deduction under section 54 of the Income Tax Act, 1961 denied by the Commissioner of Income Tax (Appeals).2. Enhancement of assessment due to unexplained investments.Issue 1: Deduction under section 54 of the Income Tax Act, 1961 denied by the Commissioner of Income Tax (Appeals):The appellant transferred his property to a company and claimed deduction under section 54 for the purchase of a new property. The Commissioner of Income Tax (Appeals) denied the deduction on various grounds, including the failure to purchase a new house within the specified time frame, failure to deposit sale proceeds in the Capital Gains Account Scheme, and investing in a plot instead of a flat or house. The Commissioner also raised concerns about the source of funds for the investment. However, the Tribunal noted that completion of construction within three years was not mandatory as per legal precedents. They cited cases where borrowed funds were used for construction, and as long as the construction was commenced for a residential house, the deduction could not be denied. The Tribunal remitted the issue back to the Assessing Officer to verify the actual investments made by the assessee in the construction of the new residential property.Issue 2: Enhancement of assessment due to unexplained investments:The Commissioner of Income Tax (Appeals) enhanced the assessment based on payments made to certain individuals, treating them as unexplained investments. The Tribunal, upon review, found that the payments were not related to the assessment year under consideration and suggested that appropriate action should be taken in the relevant assessment year. They highlighted that payments made to other parties on the instruction of the assessee's contractor needed further examination to ensure compliance with accounting practices and the law. Consequently, the Tribunal remitted this issue back to the Assessing Officer for a fresh consideration and proper investigation.In conclusion, the Tribunal partly allowed the appeal of the assessee, emphasizing the need for a thorough examination of the deductions claimed under section 54 and the assessment enhancement related to unexplained investments. The Tribunal's decision aimed at ensuring proper verification and compliance with legal requirements in both aspects of the case.