Assessee eligible for Section 54F exemption despite not depositing unutilized amount in Capital Gains Accounts Scheme

ITAT Chennai held that assessee was eligible for Section 54F exemption for LTCG despite not depositing unutilized amount in Capital Gains Accounts Scheme, provided construction of new residential house was completed within three years from asset transfer date. Following Karnataka HC precedent in K. Ramachandra Rao, failure to deposit unutilized consideration during interim period was not fatal to Section 54F claim if construction completed within stipulated timeframe. Matter remitted to AO for verification of quantum invested and completion timeline. Appeal allowed for statistical purposes.

---

---

Issues Involved:
1. Restriction of claim under Section 54F of the Income Tax Act, 1961.
2. Utilization of sale consideration for construction of a residential house.
3. Requirement of depositing unutilized sale consideration in Capital Gains Accounts Scheme.

Issue-wise Detailed Analysis:

1. Restriction of Claim under Section 54F:
The assessee appealed against the restriction of her claim of Rs. 76,40,792/- under Section 54F to Rs. 37,73,230/- while computing capital gains on the sale of a property. The assessee sold equity shares for Rs. 81,00,000/- and claimed that the entire amount was used for acquiring land and constructing a residence. The Assessing Officer (AO) restricted the claim to Rs. 40,00,000/-, the amount withdrawn from her bank accounts and used for purchasing land by 31.07.2014, and taxed the balance as long-term capital gains.

2. Utilization of Sale Consideration for Construction:
The assessee contended that the construction of the residential house was completed before 15.03.2017, within the three-year period allowed under Section 54F(1). The AO's inspection confirmed ongoing construction and the presence of materials at the site. The assessee argued that the judgment in CIT vs. K. Ramachandra Rao supported her claim, stating that the completion of construction within the stipulated period negated the need for depositing unutilized amounts in a Capital Gains Accounts Scheme.

3. Requirement of Depositing Unutilized Sale Consideration:
The Departmental Representative argued that the assessee did not deposit the unutilized amount in the Capital Gains Accounts Scheme by the due date for filing the return (31.07.2014), making her ineligible for the full deduction under Section 54F. The Tribunal referenced the Karnataka High Court's decision in K. Ramachandra Rao, which held that if the construction of a new residential house is completed within three years, failure to deposit the unutilized sale consideration in a Capital Gains Accounts Scheme is not fatal to the claim under Section 54F(1).

Conclusion:
The Tribunal concluded that the assessee was eligible for the full exemption under Section 54F for the amount utilized in constructing the new residential house within the three-year period. However, the exact amount invested and the completion of the house within the stipulated period required verification. The Tribunal set aside the orders of the lower authorities and remitted the issue back to the AO for verification of the quantum of investment and completion of construction within the specified period.

Final Judgment:
The appeal of the assessee was allowed for statistical purposes, and the case was remitted to the AO for further verification. The order was pronounced on January 9, 2018, at Chennai.

---