Section 54F deduction must be calculated on actual sale consideration received, not deemed consideration under Section 50C provisions

ITAT Raipur held that deduction under Section 54F should be calculated based on actual sale consideration received by the assessee, not the deemed sale consideration adopted under Section 50C provisions. The tribunal ruled that "net consideration" as defined in Section 54F refers to actual consideration received from capital asset transfer, which when invested in new residential property, forms the basis for deduction quantification. The assessing officer was directed to recompute long-term capital gains after allowing Section 54F deduction based on actual sale proceeds invested in new asset construction, subject to statutory conditions being satisfied.

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Issues Involved:
1. Legality of the reassessment proceedings initiated under Section 147 of the Income-tax Act, 1961.
2. Correctness of the addition of Rs. 74,46,583/- on account of Long Term Capital Gain (LTCG) by invoking Section 50C of the Income-tax Act, 1961.
3. Entitlement of the assessee to exemption under Section 54F of the Income-tax Act, 1961 based on actual sale consideration versus deemed sale consideration.

Detailed Analysis:

1. Legality of the Reassessment Proceedings:
The assessee contended that the reassessment proceedings initiated under Section 147 were illegal and void-ab-initio. The argument was based on the assertion that the transfer of the capital asset took place in the Financial Year (FY) 2005-06 relevant to Assessment Year (AY) 2006-07, not in the year under consideration (AY 2008-09). The reassessment proceedings were initiated based on incorrect facts, as the agreement for sale was dated 04.03.2006. Consequently, the reassessment proceedings were argued to be void-ab-initio.

2. Addition of Rs. 74,46,583/- on Account of LTCG:
The Assessing Officer (A.O) observed that the assessee, along with five other family members, sold an immovable property for Rs. 1,30,50,000/-. The Sub-registrar held the market value of the property at Rs. 5,75,11,000/- for stamp duty purposes. This valuation was upheld by the Collector of Stamp and later scaled down to Rs. 2,19,89,500/- by the Board of Revenue. However, the State of Chhattisgarh challenged this, and the matter was remitted back for fresh valuation. As the issue was pending, the A.O adopted the initial valuation of Rs. 5,75,11,000/- and calculated LTCG accordingly, making an addition of Rs. 74,46,583/- under Section 50C.

3. Entitlement to Exemption under Section 54F:
The assessee claimed that he reinvested his 1/6th share of the actual sale consideration (Rs. 21,75,000/-) in constructing a new house and should be entitled to exemption under Section 54F. The CIT(Appeals) did not find favor with this argument, stating that only the actual investment in the purchase/construction of property is eligible for deduction under Section 54F, not the deemed sale consideration.

Judgment:

Reassessment Proceedings:
The additional ground of appeal concerning the legality of the reassessment proceedings was not pressed by the assessee and was dismissed as not pressed.

Addition of Rs. 74,46,583/- on Account of LTCG:
The CIT(Appeals) observed that the final valuation by the Collector of Stamps was Rs. 1,60,31,000/-. Accordingly, the LTCG was recalculated, sustaining an addition of Rs. 5,33,251/- and providing relief of Rs. 69,13,333/-.

Exemption under Section 54F:
The Tribunal concluded that the quantification of deduction under Section 54F should be based on the actual sale consideration received or accruing as a result of the transfer, not the deemed sale consideration under Section 50C. The Tribunal directed the A.O to re-compute the LTCG and rework the deduction under Section 54F based on the actual sale consideration. The Tribunal allowed the assessee's appeal on this ground.

Conclusion:
The appeal was partly allowed, with directions to re-compute LTCG and rework the deduction under Section 54F in line with the Tribunal's observations. The additional ground of appeal was dismissed as not pressed.

Order Pronouncement:
The order was pronounced in open court on 23rd August 2024.

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