Capital Gain Exemption under Section 54F upheld where CBDT extensions and admitted appellate evidence permitted the deduction.

Application of the capital gain exemption for purchase of residential property required treating payments for purchase and integral renovations as qualifying expenditure; the appellate authority admitted additional documentary evidence, applied the CBDT circulars extending the compliance period, computed the deduction by the statutory formula (capital gain x cost of new property / net sale consideration) and allowed the deduction to the extent of Rs. 36,07,51,900. The revenue challenge to admission of evidence and to applying the extended period was dismissed.

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Issues: (i) Whether deduction under section 54F of the Income-tax Act, 1961 claimed by the assessee is allowable having regard to (a) additional evidence admitted by the appellate authority and (b) extension of the date of compliance by CBDT Circulars.

Analysis: The issue involves application of section 54F deduction formula to the facts of utilisation of sale proceeds for purchase and renovation of a residential property, assessment of supporting bills and payments, and the effect of CBDT Circular No.12/2021 dated 25.06.2021 and CBDT Circular No.1/2023 dated 06.01.2023 which extended the period for completing actions necessary to claim exemptions under sections 54 to 54GB. The appellate authority considered additional documentary evidence of payments and invoices presented before it, evaluated which payments qualify as integral to the residential property (excluding non-integral items and furniture), applied the deduction computation formula (capital gain x cost of new residential property / net sale consideration) and determined the amount spent within the extended compliance period. The appellate authority is empowered to examine and admit additional evidence and form a co-terminus adjudication under the appellate powers conferred by the statute.

Conclusion: Deduction under section 54F is allowable to the extent of Rs. 36,07,51,900 and the Revenue's grounds challenging the allowance are dismissed; the appellate authority's acceptance of additional evidence and application of the CBDT circulars to extend the compliance period is affirmed in favour of the assessee.

Ratio Decidendi: Where statutory circulars validly extend the compliance period for actions necessary to claim capital gain exemptions, an appellate authority vested with statutory powers may admit and evaluate additional evidence and apply the extended period to permit deduction under section 54F of the Income-tax Act, 1961.

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