2017 (12) TMI 784 - AT - Income Tax

Tribunal grants deduction under Section 54F for capital gain on Indirapuram plot sale.

The tribunal allowed the appeal of the assessee, directing the AO to allow the deduction under Section 54F of the Income-tax Act, 1961, for the capital ... Deduction u/s 54F - capital gain earned on sale of Indrapuram plot - investment within stipulated period - Held that:- The assessee invested in the residential plot which as per the referred to Circular No. 667 dated 18.10.1993 of the CBDT should be considered towards the cost of construction of a residential house and the aggregate cost should be considered for determining the deduction u/s 54F of the Act. In the present case, the assessee purchased the plot for a sum of ₹ 57,30,000/- and as per the report of the approved valuer invested ₹ 8,25,000/- alongwith the coowner in the construction. Therefore, the combined cost of plot and the construction was much more then the sale consideration received by the assessee for Plot No. 76, Niti Khand-II, Indirapuram, Ghaziabad at ₹ 44,89,000/-. Therefore, the assessee was entitled for the deduction u/s 54F of the Act - Decided in favour of assessee. Issues Involved:1. Deduction under Section 54F for Rs. 36,65,714/- on account of capital gain earned on the sale of Indirapuram plot.2. Examination of capital gain taxability in A.Y. 2016-2017 as per Section 54F(4).3. Charging of interest under Sections 234A & 234B.Detailed Analysis:1. Deduction under Section 54F for Rs. 36,65,714/- on account of capital gain earned on the sale of Indirapuram plot:The primary issue is whether the assessee is entitled to a deduction under Section 54F of the Income-tax Act, 1961, for Rs. 36,65,714/- on account of capital gain earned from the sale of a residential plot. The assessee sold Plot No. 76, Nitikhand-II, Indirapuram for Rs. 44,80,000/- on 05.07.2012 and purchased Plot No. 300, Nitikhand-II, Indirapuram on the same day as a co-owner. The assessee claimed to have invested Rs. 57,30,000/- in the new plot and constructed a house at a cost of Rs. 4,50,000/-.The AO disallowed the deduction, stating that the construction was not completed and the structure was not habitable, based on an Inspector's report which indicated that only a boundary wall and a 15x15 feet room were present, and wild grass was growing on the plot. The assessee's additional evidences, including pictures of the completed house, bank statements, and a contractor's certificate, were submitted to the CIT(A), who also upheld the AO's decision, citing inconsistencies in the assessee's submissions and lack of credible evidence.However, upon appeal, the tribunal considered the CBDT Circular No. 667 dated 18.10.1993, which states that the aggregate cost of a plot and construction should be considered for determining the quantum of deduction under Section 54/54F. The tribunal found that the assessee had invested more than the sale consideration in the new plot and had constructed a residential unit within the stipulated period. Therefore, the tribunal directed the AO to allow the deduction claimed by the assessee under Section 54F.2. Examination of capital gain taxability in A.Y. 2016-2017 as per Section 54F(4):The assessee argued that if the capital gain issue were to be examined, it should be done in A.Y. 2016-2017, the year in which the three-year period from the date of transfer of the original asset expires. This argument was based on the provision under Section 54F(4). However, the tribunal's decision on the primary issue rendered this point moot as the deduction under Section 54F was allowed.3. Charging of interest under Sections 234A & 234B:The assessee contended that no interest under Sections 234A & 234B should be charged, and if charged, the calculations were erroneous and excessive. The tribunal did not specifically address this issue in detail, as the primary focus was on the deduction under Section 54F. However, the resolution of the primary issue in favor of the assessee implies that any interest calculations would need to be revisited in light of the allowed deduction.Conclusion:The tribunal allowed the appeal of the assessee, directing the AO to allow the deduction under Section 54F of the Income-tax Act, 1961, for the capital gain earned on the sale of the Indirapuram plot. The decision was based on the aggregate cost of the plot and construction being more than the sale consideration and the construction of a residential unit within the stipulated period. The tribunal's decision effectively resolved the issues related to the taxability of capital gains and the charging of interest under Sections 234A & 234B.