TaxTMI 
TaxTMI 
2025 (7) TMI 951
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....has not produced conclusive documentary evidence relating to investment in new residential house as per the provisions of sec.54F. 3. The learned CIT(A) erred in allowing credit for amount invested in purchase of plot of land which was prior to the period of cut-off period of one year from the date of transfer. 4. The learned CIT(A) erred in appreciating that section 54F does not speak of any "reasonable time" for purchase of an asset or investment in residential house by the assessee but sets out specific time limits as contained in the section which is not discretionary." 2. Succinctly stated, the assessee had filed his return of income for A.Y. 2022-23 on 31.07.2022, declaring an income of Rs. 71,08,871/-. Thereafter, the assessee filed a revised return of income on 31.12.2022 declaring the same income as was originally returned. Subsequently, the case of the assessee was selected for scrutiny assessment u/s 143(2) of the Act. 3. During the course of assessment proceedings, it was observed by the A.O. that the assessee had in the subject year sold multiple capital assets for an aggregate sale consideration of Rs. 5,74,09,286/-. The "Long Term Capital Gain....
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....nder: I have carefully perused the assessment order passed by the AO, grounds of appeal raised, statement of facts & written submissions furnished by the appellant. Before moving further let me reproduce the Section 54F of the Act as it stood applicable for the AY 2022-23 as under :- [Capital gain on transfer of certain capital assets not to be charged in case of investment in residential house. ^58 54F. (1) ^59[Subject to the provisions of sub-section (4), where, in the case of an assessee being an individual or a Hindu undivided family], the capital gain arises from the transfer of any long-term capital asset, not being a ^60residential house (hereafter in this section referred to as the original asset), and the assessee has, within a period of one year before or ^61 [two years] after the date on which the transfer took place ^60purchased, or has within a period of three years after that date ^62[constructed, one residential house in India] (hereafter in this section referred to as the new asset), the capital gain shall be dealt with in accordance with the following provisions of this section, that is to say,- (a) if the cost of the new asset i....
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....of three years from the date of its purchase or, as the case may be, its construction, the amount of capital gain arising from the transfer of the original asset not charged under section 45 on the basis of the cost of such new asset as provided in clause (a) or, as the case may be, clause (b), of sub-section (1) shall be deemed to be income chargeable under the head "Capital gains" relating to long-term capital assets of the previous year in which such new asset is transferred.] ^70[(4) The amount of the net consideration which is not appropriated by the assessee towards the purchase of the new asset made within one year before the date on which the transfer of the original asset took place, or which is not utilised by him for the purchase or construction of the new asset before the date of furnishing the return of income under section 139, shall be deposited by him before furnishing such return [such deposit being made in any case not later than the due date applicable in the case of the assessee for furnishing the return of income under sub-section (1) of section 139] in an account in any such bank or institution as may be specified in, and utilised in accordance with, ....
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....ing to doubt that there are three distinct non-overlapping modes providing for exemption, namely :- where the assessee has, within a period of one year before the date on which the transfer took place purchased .. .. a residential house; where the assessee has, within a period of two years after the date on which the transfer took place purchased, .. a residential house; where the assessee has, has within a period of three years after that date constructed, a residential house. The reference to the cost of purchase or construction of residential house includes the cost of plot also and accordingly, the cost of land is liable to be considered for the purpose of granting exemption along with the amount spent on purchase or construction of superstructure thereon. The position that the cost of plot should also be considered as eligible for exemption under section 54F along with the cost of construction has not been agitated by the AO. The CBDT has also accepted this position vide Circular No.667 dated 18-10-1993 by providing that 'the Board are of the view that the cost of land is an integral part of the cost of the residential house, whether pur....
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.... the new asset, shall be charged under section 45 as income of the previous year in which the period of three years from the date of the transfer of the original asset expires. It, therefore, follows that in all the three modes discussed supra, the period of one/two/three years respectively is the outer limit for completing the process of purchasing or constructing a new residential house. 5.2. At this juncture it would be relevant to comprehend the object of enactment of section 54F, which can be culled out from its language. Sub-section (1) provides for exemption from capital gain arising from the transfer of original asset where the assessee has purchased within a period of one year before or two years after or constructed within three years a new residential house. Sub-section (4) provides that where the new residential house is not purchased or constructed within the stipulated periods as given under sub-section (1), the assessee will be obliged to deposit the unutilized net sale consideration in a designated capital gain scheme bank account before the date of furnishing of return under section 139(1). In such a scenario, the assessee will be allowed exemption qua suc....
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....of the AO that even though no opening time limit is enshrined in the provision for starting construction of a new qualifying residential house, it should be logically inferred with respect to the date of transfer of original asset as is the case with the purchase of a new residential house within one year before or two years after the date of transfer of the original asset sans merits. It is palpable on a simple reading of the provision that there is no reference whatsoever to the opening time limit from which the process of purchasing or constructing a new residential house has to begin. Similar to a situation when an assessee completes the process of purchasing a new residential house within one/two years, if an assessee completes the process of construction of a new residential house within a period of three years from the date of transfer of the original asset, he becomes entitled to exemption. In the absence of any opening deadline given in the provision for purchase of land or start of construction thereon, it is wholly impermissible to read the date of transfer of the original asset as the starting period under this mode. It is important to bear in mind that sale of....
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....ulation of the provision is to purchase or construct a new residential house. It is nowhere provided that only the sale proceeds of the original asset should be utilized for this purpose. It is open to an assessee to use either own or borrowed funds for the purpose of purchase or construction of a new residential house. This view is further amplified from the mandate of the first mode of granting exemption under this provision, which is, that the assessee has purchased a new residential house within a period of one year before the date of transfer of the original asset. Possibility of availing exemption under this mode can be only in a scenario where the original asset has not been transferred and the sale consideration of the original asset is not realized, except to the extent of advance received, if any, on the ensuing sale of the original asset. Thus it is far-fetched to argue that utilization of only the sale consideration from the transfer of original asset is to be utilized for purchase or construction of a new residential house so as to qualify for the exemption. Therefore, the contention of the AO that for availing exemption under section 54F, it is mandatory to purchase o....
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....ls/vouchers etc. During the appellate proceedings, the appellant claimed that the AO erred in disallowing the construction expenses by neglecting the documentary evidences filed before him and furnished the copy of construction plan, bank account statement, bills/vouchers, photocopy of residential house etc. The same were perused & found to be in order. In view of the facts discussed & respectfully following the judicial decision quoted above, the contention of the appellant is accepted and hence it is held that assessee is eligible for deduction u/s 54F of the Act against the cost of plot of land as well as construction expenses incurred for residential house property. Therefore addition made of Rs. 4,24,08,090/- to the total income of the assessee on account of disallowance of section 54F of the Act is hereby deleted. Accordingly, Ground No. 1 is allowed. 5. The Revenue being aggrieved with the order of CIT(A) has carried the matter in appeal before us. 6. We have heard the learned Authorized Representatives of both parties, perused the orders of the lower authorities and the material available on record, as well as considered the judicial pronouncement and CBDT Ci....
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....wn support from the order of ITAT, Pune Bench "B" in the case of Sohanlal Mohanlal Bhandari Vs. ACIT, Circle 1, Nashik, (2019) 104 Taxman.com 116 (Pune). Apart from that, the Ld. AR submitted that as the assessee based on supporting documentary evidence had substantiated the investment made by him towards the construction of the new residential house within the prescribed period, therefore, there was no justification for the A.O. to have drawn inferences regarding the said factual position as was discernible based on the documents/material available before him. Alternatively, the Ld. AR submitted that as the assessee has disposed of the new residential house within the lock-in period of three years, therefore, he had as per sub-section (3) of Section 54F of the Act, offered the subject LTCG for tax in his return of income for the year of transfer i.e., AY 2024-25 (copy of the return of income for AY 2024-25 placed on record). 9. We have thoughtfully considered the contentions advanced by the Ld. Authorized Representatives on the aforesaid issues in the backdrop of the orders of the lower authorities. 10. Controversy involved in the present appeal primarily hinges around two i....
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....cts for construction, proof for incurring the expenses against the construction activity claimed by the assessee (in the form of bank statement duly supported with supporting bills / vouchers, etc.) etc., is furnished to prove the claim of assessee's under construction house. In view of the above discussion, the claim of deduction u/s 54F of the Act amounting to Rs. 4,24,08,090/- is rejected and entire long term capital gain of Rs. 4,24,08,090/- is proposed to be taxed as 'long term capital gain'. 12. Ostensibly, the CIT(A) had dislodged the view taken by the A.O. on both the aforementioned issues and had observed, viz. (i). that Section 54F of the Act, though contemplates an outer limit of three years from the date of sale of a capital asset for construction of a new residential house by the assessee, but there is no opening time in which the assessee is obligated to purchase the plot on which the new residential house is constructed; and (ii) that as the A.O. had erred by neglecting the documentary evidence that was filed by the assessee to substantiate the investment made by him towards the construction of the new residential house, viz. copy of the const....
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.... "net consideration", in relation to the transfer of a capital asset, means the full value of the consideration received or accruing as a result of the transfer of the capital asset as reduced by any expenditure incurred wholly and exclusively in connection with such transfer. (2) Where the assessee purchases, within the period of two years after the date of the transfer of the original asset, or constructs, within the period of three years after such date, any residential house, the income from which is chargeable under the head "Income from house property", other than the new asset, the amount of capital gain arising from the transfer of the original asset not charged under section 45 on the basis of the cost of such new asset as provided in clause (a), or, as the case may be, clause (b), of sub-section (1), shall be deemed to be income chargeable under the head "Capital gains" relating to long-term capital assets of the previous year in which such residential house is purchased or constructed. (3) Where the new asset is transferred within a period of three years from the date of its purchase or, as the case may be, its construction, the amount of capital gai....
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....) the assessee shall be entitled to withdraw the unutilised amount in accordance with the scheme aforesaid." 14. Ostensibly, the sub-section (1) of Section 54F of the Act, inter alia, contemplates, that in a case where 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, one residential house in India (hereinafter under referred to as the "new asset"), the capital gain shall be dealt with in accordance with the provisions of the section, viz. (a). if the cost of the new asset is not less than the net consideration in respect of the original asset, the whole of such capital gain shall not be charged under Section 45 of the Act; (b). if the cost of the new asset is less than the net consideration in respect of the original asset, so much of the capital gain as bears to the whole of the capital gain the same proportion as the cost of the new asset bears to the net consideration shall not be charged under Section 45 of the Act. 15. On close scrutiny of the aforesaid statutory provision, it transpires that though the "purchase" of a new residen....
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....observed, that as the investment in the residential plot on which construction of the new residential house is stated to have been carried out was made by the assessee not within the "one year window" that was available to him before the first transfer transaction on 17.06.2021 i.e. not beyond 17.06.2020, but was purchased by him much prior thereto on 12.12.2019, therefore, the same was not eligible for exemption under Section 54F of the Act. Our aforesaid view, that neither the purchase of the residential plot (on which the new residential house is constructed) nor the construction of the new residential house on the same is statutorily required to be subsequent to the date of the sale of the capital asset is supported by the judgment of the Hon'ble High Court of Allahabad in the case of Commissioner of Income Tax vs. H.K. Kapoor (Decd.) [1998] 234 ITR 753 (All), which was rendered in the context of the pari materia provisions of Section 54 of the Act. The indulgence of the Hon'ble High Court was, inter alia, sought for adjudicating the following substantial question of law: "2. Whether, on the facts and the circumstances of the case, the Income-tax Appellate Trib....
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.... residential house. We are, therefore, of the opinion that the assessee complied with the requirement of Section 54 in respect of the construction of the house at 64, Surya Nagar, Agra, and that he is entitled to the exemption out of the capital gains from the sale of the house at Golf Link to the extent of the cost of construction of the house at 64, Surya Nagar, Agra. We, therefore, direct the Income-tax Officer to modify the assessment accordingly." 7. The question for consideration is whether exemption on capital gains could be refused to the assessee simply on the ground that the construction of the Surya Nagar, Agra house, had begun before the sale of the Golf Link house. Similar question came up for consideration before the Karnataka High Court in the case of CIT v. J.R. Subramanya Bhat [1987] 165 ITR 571. In the case before the Karnataka High Court, the date of the sale of the old building was February 9, 1977. The completion of the construction of the new building was in March, 1977, although the commencement of construction started in 1976. On these facts, the Karnataka High Court held that it was immaterial that the construction of the new building was started b....
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.... incurring the expenses against the construction activity as claimed by him i.e. bank statements duly supported by bills/vouchers etc., therefore, the said unsubstantiated claim qua the investment that was claimed by him to have been made towards the construction of the new residential house could not be summarily accepted. Although the CIT(A) had dislodged the observation of the A.O., but a perusal of his order reveals that the same has been done based on general observations. The CIT(A) had though stated in his order that he has perused the documentary evidence that was filed by the assessee before the A.O and found the same to be in order, but we find that there is no whisper in his order about any such specific material/evidence based on which he had accepted the investment claimed by the assessee to have been made in the construction of the new residential house within the prescribed period. In fact, there is no reference by the CIT(A) of any material which substantiated the actual investment made by the assessee in the construction of the new residential house, i.e. the bank statement, construction contract (if any), bills/vouchers of material and labour, valuation report, et....