2022 (7) TMI 742 - AT - Income Tax

Tribunal orders including land cost in deduction under Section 54, emphasizing construction completion date.

The Tribunal allowed the appeal, instructing the assessing officer to include the cost of land in calculating the deduction under Section 54 of the Income ... Exemption u/s. 54 - denial of claim on the ground that the assessee has commenced the construction of the residential house property before the sale of long term capital asset - HELD THAT:- We find merit in the argument of the Ld. AR that the cost of land even though purchased prior to the date of sale of residential house on 28/2/2015, shall be allowed as a deduction U/s. 54. Date of completion of the construction should be within the period as specified U/s. 54 of the Act and the commencement of construction is not the criteria as mentioned in section 54 of the Act It is not disputed by the Revenue that the new residential house has been constructed within the time stipulated in section 54(1) of the said Act. It is the cost of the new residential house and not just the cost of construction of the new residential house which is to be allowed as deduction. In view of the above by respectfully following the ratio laid down in the case of C. Aryama Sundaram [2018 (8) TMI 864 - MADRAS HIGH COURT] where the cost of new residential house which should necessarily include the cost of land, cost of materials used in the construction, the cost of labour and other relatable cost of construction of the residential house has to be considered for the purpose of deduction U/s. 54 of the Act. We therefore direct the Ld. AO to consider the cost of land purchased by the assessee while computing the deduction U/s. 54 of the Act and we allow the appeal of the assessee. Issues:Denial of exemption under Section 54 of the Income Tax Act on the grounds of construction commencement before the sale of long-term capital asset.Analysis:The appeal was filed against the order of the Ld. CIT(A)-1, Visakhapatnam, regarding the assessment under Section 143(3) of the Income Tax Act for the AY 2015-16. The assessee, a civil contractor, declared total income of Rs. 62,08,350, which was disputed by the assessing officer, resulting in an assessment of total income at Rs. 1,32,02,792 by disallowing the deduction under Section 54 of the Act. The Ld. CIT(A) upheld the AO's decision, leading to the current appeal.The main issue raised by the assessee was the denial of exemption of Rs. 32,57,272 under Section 54 of the Act due to the commencement of construction before the sale of the long-term capital asset. The argument presented was that the cost of land should be included while calculating the deduction under Section 54, relying on relevant legal provisions and a High Court decision.The Tribunal examined the facts, noting that the assessee sold a residential property and claimed a deduction under Section 54 for constructing a new house. The Revenue Authorities allowed a partial deduction, contending that the cost of construction before the sale date was not eligible. However, the assessee cited a Board Circular and a High Court judgment to support the inclusion of land cost in the deduction.The Tribunal agreed with the assessee's argument that the completion date of construction, not the commencement date, is crucial for Section 54 compliance. Referring to Section 54(1) of the Act and the legal precedent, the Tribunal emphasized that the cost of land purchased before the sale date should be considered for the deduction. Citing the High Court's ruling, the Tribunal directed the AO to include the cost of land in computing the deduction under Section 54, ultimately allowing the assessee's appeal.In conclusion, the Tribunal allowed the appeal, emphasizing the importance of considering the cost of land and the completion date of construction for deductions under Section 54 of the Income Tax Act.