TaxTMI 
TaxTMI 
TaxTMI 
2025 (7) TMI 951
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.... 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 Gains" (LTCG) aggregating to Rs. 4,24,08,090/- on the aforesaid sale transactio....
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....ds 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 is not less than the net consideration in respect of the original asset, the whole of such capital gain shall no....
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....is 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, any scheme/1which the Central Government may, by notification in the Official Gazette, frame in this behalf and such return shall be accompanied by proof of such deposit ; and, for the purposes of sub-section ....
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....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 purchased or built. Accordingly, if the amount of capital gain for the purposes of section 54F, is appropriated towards purchase of a plot and also towards construction of a residential house thereon, the aggregate cost should be considered for determining the quantum of deduction under section 54F of t....
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....it 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 such amount of deposit as well. Sub-section (2) provides that where the assessee purchases or constructs another residential house within the two/three years, which is different from the residential house purchased/constructed by the assessee qualifying for exemption under section 54F, then the amount of exemption al....
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....ears 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 an original asset and side-by-side purchase or construction of a new residential house is not only an important decision of one's life having repercussions for a longer period of time, but is also a time consuming matter as the concerned person has to mobilise his resources. If a plot is purchased in contemplation of ensui....
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....urther 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 or construct a new residential house only by using the consideration realized on the transfer of original asset is repelled. Once this argument fails, the edifice of the AO's contention that the starting point would consequently be the date of transfer of the original asset falls flat on the ground. 5.4. It is seen that whereas t....
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.... 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 Circular No.667, dated 18.10.1993 that were pressed into service by them to drive home their respective contentions. 7. Dr. Sachin Kumar, the learned Senior Departmental Representative (for short "Ld. DR"), submitted that as the assessee had purchased the plot on which the new residential property is stated to have been constructed much before the period of one year ....
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....ed 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 issues, viz. (i) whether the investment made by the assessee towards the purchase of the plot (on which construction of the new residential house is stated to have been carried out) i.e purchased 1½ year before the first transaction of sale of the capital asset carried out on 17.06.2021 will form part of his investment eligible for exemption u/s 54F of the Act?; AND (....
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....d 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 construction plan, bank account statement, bills/vouchers etc., therefore, there was no justification for him to draw adverse inferences regarding the assessee's claim of investment in the new residential house and decline the exemption under Section 54F of the Act. 13. Before proceeding further, we deem it fit to cull out the provisions of Section 54F of the Act which read as under: "54F. (1) Subject to th....
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....e, 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 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. (4) The amount of the net consideration which is not appropriated by the assessee towards the purchase of the new asset made wi....
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.... 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 residential house is circumscribed by a specific opening and closing time limit i.e. a window of one year before or two years after the date on which the sale of the capital asset had taken place, but interestingly, the construction of a residential house has only the outer limit i.e. a period of three years to be reckoned from the date on which the capital asset had been transferred. In the absence of any time limit having been provided in Section 54F of the Act within which an assessee is obligated to either purchase the plot on which the new residentia....
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....s 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 Tribunal was correct in law in holding that for availing of the benefits under section 54 of the Income-tax Act, 1961, it is not necessary that the construction of the new house should begin after the sale of the old house?" The Hon'ble High Court answered the aforesaid issue in favor of the assessee and approved the view taken by the Tribunal. It was observed by the Hon'ble High Court that the exemption of capital gains could not be refused to the assessee simply on the ground that the construction of the new residential house had begun before the s....
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....he 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 before the sale of the old building. We fully agree with the view taken by the Karnataka High Court. The Appellate Tribunal was right in holding that capital gains arising from the sale of the Golf Link house to the extent it got invested in the construction of the Surya Nagar house, will be exempted under Section 54 of the Act." (emphasis supplied by us) Also, we find that a similar view has been taken by the coordinate bench of the Tribunal i.e., ITAT Pune Bench "B" in the case of Sohanlal Mohanlal Bhandari Vs. ACIT, Circle-1, Nashik (2019 ) 104 taxmann.com 161 (Pune). 16. Apropos the Ld....
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....e 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, etc. We are unable to subscribe to the summary acceptance of the assessee's claim of having invested in the construction of the new residential house within the prescribed period by the CIT(A). We thus, in terms of our aforesaid observations, are of the firm conviction, that the matter is required to be restored to the file of the A.O., for the limited purpose of verifying the assessee's claim of having invested up to the date of furnishing the return of income under Section 139 of the Act (including investment made towards the purchase of the residential plot on which the new residential house is sta....