Tribunal grants full Section 54F exemption, emphasizes investment in residential house

The Tribunal allowed the assessee's appeal, reversing the CIT(A)'s order that restricted the exemption under Section 54F of the Income Tax Act. The Tribunal held that the assessee was entitled to the benefit of Section 54F in its entirety, emphasizing that the exemption should not be denied for failure to deposit the amount in the capital gains account scheme if the entire sale consideration is invested in constructing a residential house within the stipulated period.

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Issues Involved:
1. Whether the CIT(A) was justified in confirming the A.O.'s order restricting the exemption u/s 54F of the I.T.Act.

Issue-wise Detailed Analysis:

1. Restriction of Exemption u/s 54F:
The primary issue in this case was whether the CIT(A) was justified in confirming the A.O.'s order, which restricted the exemption under Section 54F of the Income Tax Act. The assessee had sold plots and invested the sale consideration in a villa project. However, the A.O. restricted the exemption because the assessee did not deposit the sale consideration in the capital gains scheme before the due date of filing the return under Section 139(1) of the I.T.Act.

Facts of the Case:
The assessee sold plots for Rs. 1,19,04,500 and invested the same in a villa project. She claimed an exemption of Rs. 1,16,34,752 under Section 54F. The A.O. restricted the exemption to Rs. 24,44,124, stating that the balance amount was not deposited in the capital gains account scheme within the due date of filing the return under Section 139(1) of the I.T.Act.

CIT(A)'s Findings:
The CIT(A) held that the assessee failed to prove the house was constructed within three years from the date of sale of the original asset. The completion certificate from the builder did not suffice unless issued by the local municipal authority. Additionally, the electricity bill was not in the assessee's name. Therefore, the CIT(A) confirmed the A.O.'s addition of Rs. 92,10,629.

Assessee's Grounds of Appeal:
The assessee argued that the CIT(A)'s order was erroneous and bad in law. The assessee contended that the house was constructed within three years, and the completion certificate from the builder should be considered valid. Furthermore, the assessee cited the Karnataka High Court's judgment in CIT v. K.Ramachandra Rao, which held that exemption under Section 54F should not be denied merely because the amount was not deposited in the capital gains account scheme if it was invested in a residential house within three years.

Tribunal's Analysis:
The Tribunal examined Section 54F and noted that the exemption is granted if the assessee invests the sale consideration in a residential house within three years. The requirement to deposit the amount in the capital gains account scheme arises only if the amount is not utilized for purchase or construction before the due date of filing the return under Section 139. The Tribunal relied on the Karnataka High Court's judgment in CIT v. K.Ramachandra Rao, which clarified that if the entire sale consideration is invested in constructing a residential house within three years, the exemption cannot be denied for not depositing the amount in the capital gains account scheme.

Judicial Precedents:
The Tribunal also referred to other judicial pronouncements, including CIT v. Smt.B.S.Shanthakumari, Pr.CIT v. Sri.C.Gopalaswamy, and CIT v. Sambandam Udaykumar, which supported the view that the exemption under Section 54F should be granted if the investment is made in a residential house within the stipulated period, even if the construction is not fully complete.

Conclusion:
The Tribunal concluded that the assessee was entitled to the benefit of Section 54F in its entirety. The appeal filed by the assessee was allowed, and the order of the CIT(A) was reversed.

Order:
The appeal filed by the assessee is allowed. The order was pronounced on the 14th day of July, 2021.

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