ITO (INTERNATIONAL TAXATION)-1, HYDERABAD vs. KESAVA KUMAR KUNAPUREDDY, HYDERABAD

Aggrieved by the assessment order, the assessee preferred appeal before the Ld. CIT(A). Before the Ld. CIT(A), the assessee submitted that, he has computed long-term capital gain derived from sale of property after claiming indexed cost of acquisition, deduction under Section 54EC of Rs. 50,00,000/- for investment in REC Bonds and also claimed deduction u/s 54F of the Act, for investing sale consideration received from sale of property for purchase/ construction of new residential 4 Kesava Kumar Kunapureddy house property. The assessee had also submitted relevant details of investment, including purchase of plot dated 10.04.2018 along with TDS deducted by the buyer of the property at the time of purchase of property @ 20% amounting to Rs. 1,92,95,618/- and claimed that, the above amount is not available with the assessee for depositing into Capital Gain Account Deposit Scheme and therefore, the same should be treated as invested for construction of house property or deposited in Capital Gain Account Deposit Scheme on or before the due date. The Ld. CIT(A), after considering the relevant submissions of the assessee and also taking note of certain judicial precedents, deleted the additions made by the A.O. towards disallowance of deduction claimed under Section 54F on the ground that, the amount invested for construction of new residential house property upto the date of filing of return of income under Section 139(1) of the Act, including amounts unutilized for the assessee being TDS deducted by the purchaser of the property on sale consideration should be allowed as deduction, as if the assessee has spent the amount for construction of house property or invested in Capital Gain 5 Kesava Kumar Kunapureddy Account Deposit Scheme on or before the due date for furnishing of return of income.

Aggrieved by the order of Ld. CIT(A), the Revenue is now in appeal before us.

The learned Sr. A.R. for the Revenue, Shri Ashutosh Pradhan, submitted that, the Ld. CIT(A) erred in allowing deduction claimed by the assessee under Section 54F for Rs. 7,12,72,146/- without appreciating the fact that, the assessee has failed to prove purchase of new residential house property/construction of house property within three years from the date of transfer of original asset. The learned Sr.A.R. further submitted that, the Ld. CIT(A) ought to have appreciated the fact that, the TDS is an appropriation of sale proceeds towards taxes and further only the amount invested for construction of house property or amount invested into the Capital Gain Deposit Account Scheme can be considered for the purpose of deduction under Section 54F of the Act, as per sub- section (4) of the Act. Since the assessee has failed to prove the investment of unutilized amount of capital gain in the Capital Gain Deposit Account Scheme on or before the due date of filing 6 Kesava Kumar Kunapureddy of return of income under Section 139(1) of the Act, the A.O. has rightly disallowed the claim. The Ld. CIT(A), without appreciating the relevant facts, simply deleted the additions made by the A.O. Therefore, he submitted that, the order of the Ld. CIT(A) should be set aside and the addition made by the A.O. should be upheld.

The learned counsel for the assessee Shri S. Rama Rao, Advocate, supporting the order of Ld. CIT(A), submitted that, the assessee has claimed deduction under Section 54F of the Act, towards investment made for purchase/construction of new residential house property and also furnished relevant evidence for purchase of plot on 10.04.2018 along with relevant sale deed copy. Further, the assessee had also claimed a sum of Rs. 1,92,95,618/- being the amount of TDS deducted on sale consideration for purchase of the property as application of income or amount spent for construction/purchase of house property on or before the due date for filing of return of income under Section 139(1) of the Act, because, the said amount was not available with the assessee for making the investment either for purchase or construction of the house property or for 7 Kesava Kumar Kunapureddy making investment in the Capital Gain Deposit Account Scheme, 1988. The A.O. disallowed the deduction claimed under Section 54F of the Act, on the ground that, the assessee has not invested the unutilized portion of capital gain in the Capital Gain Deposit Account Scheme and further the construction of new residential house property was not completed within 3 years from the date of transfer of the original asset. However, the fact remains that the assessee has invested an amount of Rs. 7,33,96,000/- towards reinvestment of sale consideration for purchase/ construction of new house property and the balance amount of capital gain has been offered to tax. Further, the assessee has also completed the construction of house property within the specified time allowed as per Section 54F, though beyond 3 years, but within the extended time limit granted by the CBDT by various Notifications in light of TOLA, 2020 on account of the COVID Pandemic, for which the assessee has furnished relevant details and provisional completion certificate issued by the concerned authorities. The Ld. CIT(A), after considering the relevant facts, has rightly allowed the deduction claimed by the assessee. Therefore, he 8 Kesava Kumar Kunapureddy submitted that, the order of Ld. CIT(A) should be upheld and the appeal filed by the Revenue be dismissed.

We have heard both parties, perused the material on record and had gone through the orders of the authorities below. There is no dispute with regard to the fact that the assessee has sold immovable property during the financial year relevant to the assessment year under consideration and computed the long- term capital gain after claiming deduction towards cost of acquisition, investments made in REC bonds under Section 54EC of the Act, and also amounts spent for purchase/construction of new residential house property for Rs. 7,33,96,000/-. Further, there is no dispute with regard deduction claimed under Section 54EC. In fact, the A.O. himself has allowed deduction claimed by the assessee for Rs. 50,00,000/- towards investment made in REC bonds. The only dispute is with regard to investment in purchase/construction of new residential house property under Section 54F of the Act, for Rs. 7,33,96,000/-. The A.O. disallowed the entire amount of investment claimed by the assessee under Section 54F of the Act for Rs. 7,33,96,000/- on the ground that, the assessee has 9 Kesava Kumar Kunapureddy not invested the unutilized portion of capital gain amount in the Capital Gain Deposit Account Scheme as required under Section 54F(4), on or before the due date of furnishing of return of income under Section 139(1) of the Act. The A.O. further denied deduction on the ground that, the assessee has failed to prove completion of construction of new house property within three years from the date of transfer of original asset. It was the argument of the counsel for the assessee that, the assessee has claimed investment for purchase/construction of new residential house property for Rs. 7,33,96,000/-, which includes purchase cost of new plot of land vide sale deed No. 2614/2018 dated 10.04.2018 for Rs. 5,41,00,382/-, being cost of purchase, registration charges and miscellaneous expenses. In other words, the assessee has claimed investment for purchase/ construction of new residential house property for Rs. 5,41,00,382/- towards purchase of plot vide sale deed dated 10.04.2018. Further, the assessee has also claimed a sum of Rs. 1,92,95,618/- being TDS deducted on sale consideration of immovable property as amount invested for purchase/ construction of new residential property on or before the due 10 Kesava Kumar Kunapureddy date for furnishing the return of income, on the ground that, the said amount was not available for the assessee for investment or for making deposit in the Capital Gain Deposit Account Scheme.

In so far as the investment in purchase of plot vide sale deed dated 10.04.2018, in our considered view, the A.O. has wrongly disallowed the claim of the assessee under Section 54F of the Act, even though the assessee has made investment for purchase of plot on 10.04.2018 which is before the due date for furnishing the return of income under Section 139(1) of the Act i.e. on 31.10.2018. Since the assessee has invested a sum of Rs. 5,41,00,382/- for purchase of plot and also started construction of the house property by obtaining necessary permissions from the authorities, in our considered view, the A.O. ought to have allowed deduction claimed under Section 54F of the Act, for Rs. 5,41,00,382/-. Insofar as the observations of the A.O. with regard to completion of construction of house property within three years, in our considered view, although the assessee has not completed the construction within three years, but has completed the construction within the extended due date as per the 11 Kesava Kumar Kunapureddy Notification No. 02/2020, dated 31.03.2020 and subsequent notification issued by the CBDT under the Taxation and Other Laws (Relaxation of Certain Provisions) (TOLA Act, 2020) where the CBDT has extended the due date for making investment and claiming exemptions under Sections 54 to 54GB of the Act up to 31.03.2023 vide Circular No. 01/2023, dated 06.01.2023. Since the assessee has proved the completion of the house property within the extended due date as per the said circular issued in view of the COVID Pandemic, in our considered view, the reasons given by the A.O. to disallow deduction claimed under Section 54F of the Act, on the ground of not completing house property within three years from the date of transfer of original asset is contrary to the facts available on record and cannot be accepted. Therefore, in our considered view, there is no error in the reasons given by the Ld. CIT(A) to allow deduction claimed towards purchase of plot for Rs. 5,41,00,382/- and claimed deduction under Section 54F of the Act.

Coming back to the remaining amount of Rs. 1,92,95,618/- claimed by the assessee under Section 54F of the Act. The assessee has claimed a sum of Rs. 1,92,95,618/- being 20.6% 12 Kesava Kumar Kunapureddy TDS deducted on total consideration received for sale of property as amount spent towards construction of house property on or before the due date of furnishing of return of income under Section 139(1) of the Act. The assessee claimed that, the above amount is not available to the assessee for making investment either for purchase or construction of house property or for making deposit in the Capital Gain Deposit Account Scheme and therefore, the amount appropriated towards TDS may be treated as application of sale consideration for purchase/ construction of house property. The assessee further supported the above contention in light of housing loan taken on 27.03.2019 and subsequent release of amount by refund of TDS by the Department on 14.11.2019 for Rs. 1,72,52,865/- and claimed that, the assessee has spent the above amount of Rs. 1,72,52,865/- towards construction of house property on or before 22.11.2021. First of all, the sum of Rs. 1,92,95,618/- being TDS deducted on sale consideration is not available to the assessee either for making investment for purchase of new house property or for making a deposit in the Capital Gain Deposit Account Scheme on or before the due date 13 Kesava Kumar Kunapureddy under Section 139(1) of the Act. Since the amount represents TDS deducted on sale consideration and is deposited in the Government account, in our considered view, the A.O. cannot expect the assessee to spent the above amount on or before the due date for furnishing of return of income, either for purchase/ construction of new house property or making deposit in the Capital Gain Deposit Account Scheme. Since the above amount is practically not available to the assessee, because the same is represent TDS deducted on sale consideration, in our considered view, for the purpose of Section 54F, the assessee needs to invest the net consideration (gross consideration received from sale of property – TDS deducted on sale consideration) and if the assessee invests the net consideration either for construction of house property or for purchase of house property, in our considered view, the assessee satisfies the conditions provided under Section 54F(1) of the Act and therefore, the A.O. ought not to have disallowed the claim of the assessee as per the provisions of Section 54F(4) of the Act, 1961. Further, the assessee has also proved by filing relevant evidence that, the amount represented TDS of Rs.1,72,52,865/- 14 Kesava Kumar Kunapureddy has been subsequently utilized for construction of house property after receipt of refund of Rs. 1,72,52,865/- from the Department on 14.11.2019 and the said amount has been utilized for construction on 14.11.2019, which is further fortified by the Provisional Occupancy Certificate issued by authorities on 22.11.2021. Since the assessee was not having the amount for making the investment in the Capital Gain Deposit Account Scheme on or before the due date for furnishing of return of income u/s 139(1) of the Act, and further the above amount has been utilized for construction of house property within the specified date as per the provisions of Section 54F of the Act, in the light of the Circulars issued by the CBDT from time to time in view of TOLA, 2020, in our considered view, the A.O. ought not to have disallowed the deduction claimed under Section 54F of the Act. The Ld. CIT(A), after considering the relevant facts, has rightly deleted the additions made by the A.O.

Insofar as the arguments of the Revenue in light of the decision of the Hon’ble Bombay High Court in the case of Humayun Suleman Merchant Vs CIT in of 2002, in 15 Kesava Kumar Kunapureddy our considered view, the facts of the present case are entirely different from the judgment relied upon by the Ld. CIT-DR in the above case and the case law relied upon by the Ld. CIT-DR cannot be considered.

In this view of the matter, and considering the facts of the present case, we are of the considered view that, there is no error in the reasons given by the Ld. CIT(A) to delete the addition made towards disallowance of deduction claimed under Section 54F of the Act. Thus, we are inclined to uphold the findings of the Ld. CIT(A) and dismiss the appeal filed by the Revenue.

In the result, the appeal of the Revenue is dismissed.