2025 (4) TMI 86 - AT - Income Tax

Assessee denied section 54F LTCG deduction for constructing house before selling original asset

The ITAT Pune confirmed denial of LTCG deduction under section 54F. The assessee sold an original asset but failed to meet statutory requirements for ... LTCG - denial of benefit of deduction u/s 54F - as per AO there was no evidence proving the house is actually constructed within the time prescribed therein - HELD THAT:- We note that the assessee had not constructed the new house after the date of sale of original asset as the purchase of plot, approval of plan and permission for construction were all affected before the sale of original asset. In this regard, we find no dispute from the Ld. AR, therefore, in our opinion, the arguments of Ld. AR is not acceptable. On plan reading of provisions u/s 54F in order to get deduction u/s 54F of the Act, the assessee was required to purchase the house within a period from 19.01.2006 to 18.01.2009 or the assessee should have constructed the house within a period of 3 years from the date of sale i.e. 19.01.2007 to 18.01.2010. On perusal of the valuation report in page no.1 which clearly shows the year of construction in completion is given between years 2005-06, 2006-07 and 2007-08. Therefore, it is clear that the assessee is neither purchased a house within one year nor constructed house within specified period contained in provisions u/s 54F of the Act. Order denying deduction u/s 54F confirmed - Decided against assessee. ISSUES PRESENTED and CONSIDEREDThe core legal question considered in this judgment was whether the assessee was entitled to a deduction under Section 54F of the Income Tax Act, 1961, for the construction of a residential house, utilizing the proceeds from the sale of a plot of land.ISSUE-WISE DETAILED ANALYSISRelevant Legal Framework and Precedents:Section 54F of the Income Tax Act provides for a deduction in respect of capital gains arising from the transfer of any long-term capital asset, not being a residential house, if the assessee has, within a period of one year before or two years after the date on which the transfer took place, purchased, or has within a period of three years after that date constructed, a residential house. The deduction is contingent upon the fulfillment of these conditions.Court's Interpretation and Reasoning:The Tribunal examined the conditions stipulated under Section 54F, emphasizing the requirement that the construction of the new residential house must occur within three years from the date of transfer of the original asset. The Tribunal noted that the assessee had purchased the plot and obtained construction permissions well before the sale of the original asset, which did not align with the statutory requirements for claiming the deduction.Key Evidence and Findings:The key evidence considered included the dates of purchase of the plot (09.04.2003), the sanctioning of the construction plan (30.06.2005), and the absence of a completion certificate for the house. The valuation report submitted by the assessee indicated construction activities spanning 2005-06, 2006-07, and 2007-08 but did not specify exact dates of commencement or completion.Application of Law to Facts:The Tribunal applied Section 54F to the facts, focusing on the timeline of events. It concluded that the construction activities, having commenced and been permitted prior to the sale of the original asset, did not satisfy the statutory requirement of constructing a new house within three years post-transfer.Treatment of Competing Arguments:The assessee argued that the construction was completed within the permissible period, supported by a valuation report. However, the Tribunal found that the report lacked specific commencement and completion dates, rendering it insufficient to establish compliance with Section 54F. The Tribunal also considered but distinguished the judicial precedents cited by the assessee, noting factual differences.Conclusions:The Tribunal concluded that the assessee did not meet the conditions for claiming a deduction under Section 54F, as the construction of the house occurred before the sale of the original asset, contrary to the statutory requirements.SIGNIFICANT HOLDINGSPreserve Verbatim Quotes of Crucial Legal Reasoning:The Tribunal emphasized, 'The AO has clearly established in his order that the appellant had not constructed the new house after the date of sale of original asset, rather it was before the sale of original asset as the purchase of plot, approval of plan and permission for construction were all done even before the sale of original asset.'Core Principles Established:The judgment reinforced the principle that for a deduction under Section 54F, the construction of a new residential house must occur within the specified period post-transfer of the original asset. Pre-transfer construction activities do not qualify for the deduction.Final Determinations on Each Issue:The Tribunal upheld the orders of the Assessing Officer and the CIT(A), confirming the denial of the deduction under Section 54F. The appeal by the assessee was dismissed, affirming the computation of capital gains as determined by the Assessing Officer.