TaxTMI 
TaxTMI 
2026 (9) TMI 1868
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....ailable with the department, during the F.Y. 2014-15 the assessee has sold an immovable property for Rs. 1,45,81,500/- and hence the case was reopened for by issuing notice u/s. 148 of the Act dated 31.03.2018. In response to the notice u/s. 148 of the Act, the assessee filed his Return of Income on 07.09.2022, for the Assessment Year 2015-16, by declaring an income of Rs. 3,47,220/-. In the said return the assessee had declared a sale consideration of Rs. 72,90,750/- and claimed an indexed cost of acquisition of Rs. 6,42,867/- and balance amount of Rs. 66,47,883/- is claimed as deduction u/s. 54 of the Act. The Assessment is completed and Order u/s. 143(3) r.w.s.147 of the Act dt. 14.03.2023 by disallowing an amount of Rs. 66,47,883/- claimed as deduction u/s. 54 of the Act. 3. The assessee being aggrieved by the order of the AO preferred an appeal before the Ld.CIT (A), who in turn dismissed the appeal of the assessee by confirming the order of the AO. The assessee aggrieved by the order of the ld.CIT(A) is in appeal before us. 4. The ld.AR submitted that the assessee and his brother Mr.D.Kannan jointly sold the inherited residential property to Mr.V.Venkateshwaran (PAN: AA....
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....axes (CBDT) through Circular No. 667, dated 18.10.1993, clarified that the cost of the land is an integral part of the cost of the residential house, whether purchased or built. Accordingly, if the capital gain is appropriated towards the purchase of a plot and also towards the construction of a residential house thereon, the aggregate cost should be considered for determining the quantum of deduction u/s. 54 of the Act. This is provided that the acquisition of the plot and also the construction thereon, are completed within the period specified in these sections. 9. The ld.AR relied on the judicial pronouncements supported the above view by Hon'ble Madras High Court in C.Aryama Sundaram v. CIT [2018] 97 taxmann.com 74/258 Taxman 10 (Mad.) by holding that the cost of the new residential house would necessarily include the cost of the land, the cost of materials used in the construction, the cost of labour, and any other cost relatable to the acquisition and/or construction of the residential house. This decision was upheld by the Supreme Court, which dismissed the Special Leave Petition filed by the revenue in CIT v. C. Aryama Sundaram [2023] 148 taxmann.com 364/292 Taxman 71 (S....
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....truction of residential property for Rs. 69,60,000/- (Paper book Page No.22). The ld.AR drew our attention to the total valuation given by the valuer is Rs. 75,41,700/- (Total valuation of land 12,37,500/- + building 69,60,000/- deducted 8% cost saving due to own supervision and direct purchases on Rs. 81,97,500/-). Therefore, the ld.AR prayed for setting aside the order of the ld.CIT(A) and allow the appeal of the assessee. 14. Per contra, the ld.DR supported the orders of the authorities and submitted that the assessee has built the house on the site, which belongs to his wife, which was bought earlier to the sale of the House property, which is in question for capital gains. Therefore, ld.DR prayed for dismissing the appeal of the assessee. 15. We have heard the rival submissions, perused the material available on record and gone through the orders of the authorities below, the paper book filed by the assessee and the judicial precedents relied upon by both sides. The issue for our consideration is whether the assessee is entitled to deduction u/s. 54 of the Act in respect of the investment made in the new residential house constructed on the plot standing in the name of h....
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....operty at Rs. 75,41,700/-, after taking into account the value of the land of Rs. 12,37,500/-, the value/cost attributable to the building/construction and the adjustment towards cost saving on account of own supervision and direct purchase of construction materials. The ld.AR accordingly contended that the investment made in the residential house was sufficient to support the deduction claimed u/s. 54 of the Act. 21. We have carefully considered the rival contentions. Section 54 provides, inter alia, that where the capital gain arises from transfer of a long-term capital asset being a residential house and the assessee has, within the period prescribed therein, purchased or constructed another residential house, the capital gain shall be dealt with in accordance with the provisions of the said section. In the case of construction, the statute provides a period of three years after the date of transfer of the original asset for construction of the new residential house. 22. In the present case, there is no dispute that the original residential property was transferred on 10.12.2014. The material placed before us indicates that the construction of the new residential house was....
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....d satisfy the conditions and the period prescribed under the relevant provision. 27. In the case before us, the factual position is materially different insofar as the land component is concerned. The plot was not only acquired approximately 17 months prior to the transfer of the original residential house, but was also purchased and registered in the name of the assessee's wife. Therefore, having regard to the peculiar facts of the present case, we are not inclined to include the cost of land of Rs. 12,37,500/- while determining the quantum of deduction allowable to the assessee u/s. 54 of the Act. 28. At the same time, we are unable to accept the action of the lower authorities in denying the entire deduction, including the expenditure attributable to construction of the residential house. The land component and construction component are capable of being separately identified on the basis of the valuation report placed on record. Once the assessee has constructed a residential house within the statutory period and the amount attributable to such construction is separately ascertainable, the entire claim cannot be rejected merely because the underlying plot was acquired....
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....nce to the investment made in construction of the new residential house and compliance with the conditions prescribed u/s. 54 of the Act during the relevant statutory period. We have, therefore, confined our adjudication to the construction component established on the basis of the material placed before us. 35. In view of the foregoing discussion, we hold that the AO was not justified in denying the entire deduction of Rs. 66,47,883/- u/s. 54 of the Act. At the same time, we are not inclined to accept the assessee's claim insofar as it seeks inclusion of the cost of the vacant land of Rs. 12,37,500/- purchased and registered in the name of his wife approximately 17 months prior to the transfer of the original residential house. 36. We accordingly direct the Jurisdictional Assessing Officer (JAO) to exclude the land cost of Rs. 12,37,500/- from the total valuation of Rs. 75,41,700/- and allow deduction u/s. 54 of the Act in respect of the balance amount of Rs. 63,04,200/-, being the amount attributable to the eligible construction of the new residential house, subject to the construction expenditure being otherwise supported by the material already available on record. ....