Assessee entitled to s.54F deduction for residential house built within three years despite no completion certificate or specified bank deposit

ITAT KOLKATA - AT held that the assessee completed construction of a residential house within three years and is entitled to deduction under s.54F despite absence of a completion certificate and non-deposit in a specified bank account under s.54F(4). The tribunal directed the AO to allow deduction of Rs.20,31,839 (Rs.3,50,000 land; Rs.31,839 stamp/registration; Rs.16,50,000 construction). Appeal partly allowed.

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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.

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