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Facts
The assessee claimed exemption under Section 54F for investment in a plot of land, which was disallowed by the AO. The CIT(A) confirmed the AO's action. The assessee appealed to the ITAT.
Held
The Tribunal found that the assessee had substantially complied by investing in the plot before filing the return. It was held that Section 54F aims to promote investment in residential houses and the cost of the plot is part of the house cost. The Tribunal directed the AO to recalculate the capital gain.
Key Issues
Whether the investment in a plot of land qualifies for exemption under Section 54F when a house was subsequently constructed or intended to be constructed on it, and whether the requirement to deposit net consideration in a Capital Gain Account Scheme is mandatory if the entire sale receipt is invested.
Sections Cited
143(3), 54F, 234D, 46A
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Income Tax Appellate Tribunal, DELHI BENCH “F”: NEW DELHI
Before: Ms. MADHUMITA ROY & SHRI KHETTRA MOHAN ROY
O R D E R
PER Ms. MADHUMITA ROY, JM:
The instant appeal, preferred by the assessee, is directed against the order dated 06.02.2024 (DIN & Order No. ITBA/NFAC/S/250/2023-24/1060546950(1), passed by the Ld. CIT(A)/National Faceless Appeal Centre (NFAC), Delhi, arising out of the order dated 20.12.2018 (Order No. ITBA/AST/S/143(3)/2018- 19/1014451402(1), passed by the ITO, Ward 2(1), Faridabad, under Section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) for the Assessment Year 2016-17.
1. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld AO in making addition of Rs.1,34,48,839/- on account of alleged long term capital gain and has further erred in not allowing the exemption of Rs. 1,15,82,887/- claimed by the assessee u/s 54F of the Act, more so when all the conditions laid down under the section have been fulfilled and impugned addition has been made by recording incorrect facts and findings and without observing the principles of natural justice.
2. That in any case and in any view of the matter, action of Ld. CIT(A) in confirming the action of Ld. AO in making addition of Rs. 1,34,48,839/-and not allowing the benefit the exemption u/s 54F amounting to Rs.1,15,82,887/-, is bad in law and against the facts and circumstances of the case.
3. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in passing the impugned order and that too without providing the adequate opportunity of being heard and in violation of principles of natural justice and appreciating/considering the details and evidences filed by the assessed under rule 46A of Income Tax Rules.
4. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in not reversing the action of Ld. AO in charging interest u/s 234D of Income Tax Act, 1961.
5. That the appellant craves the leave to add, modify, amend or delete any of the grounds of appeal at the time of hearing and all the above grounds are without prejudice to each other.”
3. The sole ground for adjudication is with regard to deduction u/s 54F of the Act.
Learned AR has invited our attention to computation of capital gain, as reproduced below:
1. Calculation of purchase of land and indexation thereon and deduction u/s 54, copy of purchase of residential house enclosed. Land at Village Mirzapur Faridabad Total sale consideration 1,38,55,220/- Less: Indexed cost of Acquisition or Base price of year 2000 20/3 6.66667 Circle Rate in 2000 5,75,000 4,79,167/- Indexation 4,79,167*254/100 12,17,083/- Less: Cost of improvement 11,50,000/- Less: Deduction u/s 54F Purchase of Residential House within stipulated time 1,15,82,887/- Balance Taxable Nil
The appellant submitted copy of sale deed of the urban agricultural land and copy of purchase deed of the residential plot in which the amount was invested as claimed by the assessee. The AO in paras 5 & 6 of his order observed as under:
“5. I have gone through the computation of Long Term Capital Gains and claim of exemption made u/s 54F at Rs.1,15,82,877/-. On perusal of the documents/conveyance/purchase deed furnished by the assessee in support of his claim of exemption u/s 54F, it is found that the assessee had made investment in Plot bearing no. W12-12B, W, admeasuring 493.706 Sq. Mtrs. (590 Sq. Yards) situated at Parklands, Sector-76, Faridabad and not in either purchase of house or construction of house. As per the provisions of Section-54F of the Act, exemption u/s 54F is available if the following conditions are satisfied:-
The asset transferred is any long term capital asset but other than a residential house.
The assessee has purchased, within 1 year before the date of transfer, or 2 years after the date of transfer, or constructed within 3 years after the date of transfer. 4. Where the Amount of Net consideration is not appropriated or utilized by the assessee/for purchase or construction of the new house before the date of
Further as per the provisions, he has to deposit net consideration which is now appropriated or utilized by the assessee for purchase or construction of new house before the date of furnishing of return of income in the deposit account in any bank in accordance with the Capital Gain Account Scheme, 1988.”
5.1 Accordingly, addition of Rs. 1,34,48,839/- was made and added back to the income of the assessee as undisclosed long term capital gain arising from the sale of urban agriculture land.
6. The matter was carried before the Ld. CIT(A) who dismissed the appeal by passing a very cryptic order.
We have heard rival submissions and considered the materials available on record. We find that the assessee has made substantial compliance by making investment in the plot even before filing the income tax return. When he had already invested the amount there could not be any occasion to deposit the same under Capital Gain Account Scheme.
The objective of Section 54F is to promote investment in residential house and it is quite obvious that the cost of the plot is circumscribed into the cost of the house. There is no requirement under the law that capital gain account is to be opened by the assessee particularly when he has invested the entire sale receipts. capital gain. While we agree in principle that the deduction u/s 54F is permissible we direct the AO to recalculate the capital gain after taking into account the submissions of the assessee in this regard. With this direction we deem it fit and proper to remit the matter back to the AO to correctly recompute the amount of capital gain if any. Needless to mention the assessee must be extended full opportunity to explain his case.
The appeal is allowed for statistical purposes.
Order pronounced in open court on 30.05.2025.