2020 (8) TMI 590 - AT - Income Tax

Tribunal grants appeal on Income Tax Act Sections 54 & 54F benefits for house construction

Sunil Malhotra Versus ACIT, Circle-54 (1), New Delhi

Sunil Malhotra Versus ACIT, Circle-54 (1), New Delhi - [2020] 80 ITR (Trib) 372 (ITAT [Del]) Issues Involved:1. Denial of benefit under Section 54 of the Income Tax Act, 1961.2. Disallowance and additions of Long Term Capital Gain.3. Dispute regarding the construction on the property and the claim of deduction under Section 54F.Issue-wise Detailed Analysis:1. Denial of Benefit under Section 54 of the Income Tax Act, 1961The assessee contested the denial of benefits under Section 54 of the Income Tax Act, 1961. The learned Income Tax Officer (ITO) had denied these benefits by relying on Clause 2(a) of Section 54F, which the assessee argued was not applicable to their case. The assessee had sold an immovable property and claimed deductions under Section 54F for the construction of a house at D-279, Defence Colony, New Delhi. The Assessing Officer (AO) found that the assessee had also purchased another residential flat at Rajendra Nagar, which led to the denial of the Section 54F benefit. However, it was established that the capital gains were not utilized for the Rajendra Nagar flat and were duly deposited in the Capital Gains Savings Account, which were then used for the construction of the house at Defence Colony. The Tribunal held that the revenue authorities had misled themselves by holding that the purchase of the Rajendra Nagar flat was out of the sale proceeds of the original asset.2. Disallowance and Additions of Long Term Capital GainThe learned Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO’s assessment, which included disallowance and additions of the Long Term Capital Gain amounting to Rs. 1,76,95,024. The assessee argued that these additions were based on incorrect facts and that the investments in the construction of the house were out of the capital gain account scheme permissible under the law. The Tribunal, after examining the facts, noted that the capital gains were appropriately deposited and utilized for the construction of the house, and thus, the additions made by the revenue authorities were unwarranted.3. Dispute Regarding the Construction on the Property and the Claim of Deduction under Section 54FThe assessee claimed deductions under Section 54F for the construction of a house at D-279, Defence Colony, New Delhi. The AO and CIT(A) disputed this claim, asserting that the assessee had another residential property. The Tribunal reviewed the timeline and facts:- Sale of the original asset occurred on 28.04.2011.- Building plan for the new house was sanctioned on 01.08.2011.- The old house was demolished between 07.08.2011 and 17.09.2011.- The Rajendra Nagar flat was purchased on 13.09.2011.- The occupancy certificate for the new house was obtained on 01.02.2013.The Tribunal found that the assessee did not own more than one residential house at the time of the original asset's transfer and that the capital gains were deposited and used correctly. The construction was completed within the stipulated period, and the occupancy certificate confirmed the completion. Thus, the Tribunal concluded that the assessee was eligible for the deductions under Section 54F, and the additions made by the revenue authorities were unwarranted.ConclusionThe Tribunal allowed the appeal of the assessee, holding that the revenue authorities had erred in their assessment. The capital gains were utilized correctly for the construction of the house at Defence Colony, and the assessee did not own more than one residential house at the relevant time. Therefore, the addition made by the revenue authorities was deemed unwarranted, and the assessee's appeal was allowed.