Construction investment qualifies for exemption under section 54F

The Tribunal allowed the appeal, emphasizing that investment in construction within the prescribed period qualifies for exemption u/s 54F, even if the amount was not deposited in the specified bank account. The matter was remanded to the Assessing Officer for verification of the investment made by the assessee, based on the legal position established by the Karnataka High Court.

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Issues involved:
Disallowance of assessee's claim for exemption u/s 54F of the Income Tax Act, 1961.

Detailed Analysis:

1. Background: The appeal was filed by the assessee against the order of the ld. CIT(A) regarding the disallowance of the claim for exemption u/s 54F of the Income Tax Act, 1961, related to the sale of jointly owned immovable property.

2. Assessee's Claim: The assessee, an individual, sold the property and claimed exemption u/s 54F after investing in the construction of a house within 3 years from the sale. The long-term capital gain was declared, but the Assessing Officer disallowed the claim as the net consideration was not deposited in the specified bank account by the due date.

3. Appellate Proceedings: The assessee relied on the decision of the Hon’ble Karnataka High Court to support the claim, arguing substantial compliance with the conditions for exemption u/s 54F. However, the ld. CIT(A) dismissed the appeal based on the distinction of facts from the Karnataka High Court judgment.

4. Tribunal's Decision: The Tribunal considered the two questions raised in the Karnataka High Court case and focused on the second question, where it was held that if the investment in construction was made within the stipulated period, section 54F(4) was not attracted. The Tribunal noted that the claim of investment by the assessee had not been verified and directed the Assessing Officer to verify the actual investment made in the construction of the new house within the specified period.

5. Conclusion: The Tribunal allowed the appeal, emphasizing the legal position established by the Karnataka High Court that investment in construction within the prescribed period qualifies for exemption u/s 54F, even if the amount was not deposited in the specified bank account. The matter was remanded to the Assessing Officer for verification of the investment made by the assessee.

This detailed analysis highlights the legal proceedings and the Tribunal's decision regarding the disallowance of the assessee's claim for exemption u/s 54F of the Income Tax Act, 1961, providing a comprehensive understanding of the judgment.

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