ACIT., CIRCLE-5(1), HYDERABAD vs. SANJAY CHOWDARY GADDIPATI, HYDERABAD

ORDER \nप्रति रवीश सूद, जे.एम./PER RAVISH SOOD, J.M.\nThe present appeal filed by the Revenue is directed against the\norder passed by the Commissioner of Income-Tax (Appeals),\nNational Faceless Appeal Center (NFAC), Delhi, dated 14.01.2025,\nwhich in turn arises from the order passed by the Assessing\nOfficer (for short “A.O.”) u/s 143(3) r.w.s.144B of the Income Tax\nAct, 1961 (for short, “the Act”) dated 13.03.2024 for A.Y. 2012-23.\nThe revenue has assailed the impugned order on the following\ngrounds of appeal

before us :\n

1. The learned CIT(A) failed to appreciate that the assessee did not\ncomply with the provisions of sec. 54F(4) of the I.T. Act, 1961.\n2. The learned CIT(A) failed to appreciate that the assessee has not\nproduced conclusive documentary evidence relating to investment in\nnew residential house as per the provisions of sec.54F.\n3. The learned CIT(A) erred in allowing credit for amount invested in\npurchase of plot of land which was prior to the period of cut-off period\nof one year from the date of transfer.\n4. The learned CIT(A) erred in appreciating that section 54F does not\nspeak of any \"reasonable time\" for purchase of an asset or investment\nin residential house by the assessee but sets out specific time limits as\ncontained in the section which is not discretionary.\"\n2.\nSuccinctly stated, the assessee had filed his return of income\nfor A.Y. 2022-23 on 31.07.2022, declaring an income of\nRs.71,08,871/-. Thereafter, the assessee filed a revised return of\nincome on 31.12.2022 declaring the same income as was originally\nreturned. Subsequently, the case of the assessee was selected for\nscrutiny assessment u/s 143(2) of the Act.\n3.\nDuring the course of assessment proceedings, it was observed\nby the A.O. that the assessee had in the subject year sold multiple\ncapital assets for an aggregate sale consideration of\nRs.5,74,09,286/-. The “Long Term Capital Gains” (LTCG)\naggregating to Rs.4,24,08,090/- on the aforesaid sale transactions\nwas claimed by the assessee as exempt u/s 54F of the Act. On\nbeing queried, the assessee claimed that as he had utilized the “net\nsale consideration” received on the sale of the capital assets for the\nconstruction of a “new residential house”, therefore, the “Long\nTerm Capital Gains” (LTCG) arising therefrom was claimed as\nexempt u/s 54F of the Act. Elaborating further on his contention,\nthe assessee submitted that he had purchased a residential plot\nbearing SY. No.17/8 situated at Dattagalti Village, Kasaba Hobli,\nMysore Taluk vide a registered purchase deed No.7877 dated\n12.12.2019. It was further claimed by the assessee that he had\nconstructed a residential house on the aforesaid plot, and based\non the said investment raised the claim for exemption of Rs.\n4,24,08,090/- under Section 54F of the Act. However, the\naforesaid claim of the assessee did not find favour with the A.O.\nprimarily for two reasons, viz. (i). that the assessee considering the\ndate of the first transaction of sale of capital asset i.e on\n17.06.2021, ought to have purchased the residential plot within a\nperiod of one year before the said date i.e not earlier to 17.06.2020,\nbut he had purchased the same on 12.12.2019, i.e. much prior to\nthe period prescribed under Section 54F of the Act, which thus,\nrendered the investment made by him in the subject plot as\nineligible for exemption under the under Section 54F of the Act;\n(ii). that the assessee had failed to substantiate his claim of having\ninvested in the under-construction residential house based on\nsupporting documentary evidence, viz. copy of the approval plan\nfrom the concerned authority, construction contract, proof of\nhaving incurred expenses against construction activity i.e bank\naccount statements, bills/vouchers etc. Accordingly, the A.O.\nbased on his aforesaid observations declined the assessee's entire\nclaim for exemption under Section 54F of the Act of Rs.4.24 crores\n(approx.) and vide his order passed u/s 143(3) r.w.s.144B of the\nAct, dated 13.03.2024 determined his income at Rs.4,95,16,960/-\n(including LTCG).\n4.\nAggrieved, the assessee carried the matter in appeal before\nthe CIT(A), who found favour with the explanation of the assessee\nregarding his entitlement for exemption under Section 54F of the\nAct and allowed the appeal, observing as under:\nI have carefully perused the assessment order passed by the AO, grounds of appeal\nraised, statement of facts & written submissions furnished by the appellant. Before moving\nfurther let me reproduce the Section 54F of the Act as it stood applicable for the AY 2022-23\nas under:-\n[Capital gain on transfer of certain capital assets not to be charged in\ncase of investment in residential house.\n54F. (1) 59 [Subject to the provisions of sub-section (4), where, in the\ncase of an assessee being an individual or a Hindu undivided family], the\ncapital gain arises from the transfer of any long-term capital asset, not being\na 60residential house (hereafter in this section referred to as the original\nasset), and the assessee has, within a period of one year before or 61 [two\nyears] after the date on which the transfer took place 60 purchased, or has\nwithin a period of three years after that date 62[constructed, one residential\nhouse in India] (hereafter in this section referred to as the new asset), the\ncapital gain shall be dealt with in accordance with the following provisions of\nthis section, that is to say,-\n(a)\nif the cost of the new asset is not less than the net\nconsideration in respect of the original asset, the\nwhole of such capital gain shall not be charged\nunder section 45 ;\n(b)\nif the cost of the new asset is less than the net\nconsideration in respect of the original asset, so\nmuch of the capital gain as bears to the whole of the\ncapital gain the same proportion as the cost of the\nnew asset bears to the net consideration, shall not\nbe charged under section 45:\n63 [Provided that nothing contained in this sub-section shall apply where-\n(a)\nthe assessee,-\n(i)\nowns more than one residential house,\nother than the new asset, on the date of\ntransfer of the original asset; or\n(ii)\npurchases any residential house, other than\nthe new asset, within a period of one year\nafter the date of transfer of the original\nasset; or\n(iii)\nconstructs any residential house, other\nthan the new asset, within a period of three\nyears after the date of transfer of the\noriginal asset; and\n(b)\nthe income from such residential house, other than\nthe one residential house owned on the date of\ntransfer of the original asset, is chargeable under\nthe head \"Income from house property\".]\nExplanation. -For the purposes of this section,-\n66\n[***]\n67\n[***]\n\"net consideration\"68, in relation to the transfer of\na capital asset, means the full value of the\nconsideration received or accruing as a result of\nthe transfer of the capital asset as reduced by any\nexpenditure incurred wholly and exclusively in\nconnection with such transfer.\n(2) Where the assessee purchases, within the period of 69[two years] after\nthe date of the transfer of the original asset, or constructs, within the period\nof three years after such date, any residential house, the income from which\nis chargeable under the head \"Income from house property\", other than the\nnew asset, the amount of capital gain arising from the transfer of the original\nasset not charged under section 45 on the basis of the cost of such new\nasset as provided in clause (a), or, as the case may be, clause (b), of sub-\nsection (1), shall be deemed to be income chargeable under the head\n\"Capital gains\" relating to long-term capital assets of the previous year in\nwhich such residential house is purchased or constructed.\n(3) Where the new asset is transferred within a period of three years from\nthe date of its purchase or, as the case may be, its construction, the amount\nof capital gain arising from the transfer of the original asset not charged\nunder section 45 on the basis of the cost of such new asset as provided in\nclause (a) or, as the case may be, clause (b) of sub-section (1) shall be\ndeemed to be income chargeable under the head \"Capital gains" relating to\nlong-term capital assets of the previous year in which such new asset is\ntransferred.]\n70[(4) The amount of the net consideration which is not appropriated by the\nassessee towards the purchase of the new asset made within one year\nbefore the date on which the transfer of the original asset took place, or\nwhich is not utilised by him for the purchase or construction of the new asset\nbefore the date of furnishing the return of income under section 139, shall\nbe deposited by him before furnishing such return [such deposit being made\nin any case not later than the due date applicable in the case of the\nassessee for furnishing the return of income under sub-section (1) of section\n139] in an account in any such bank or institution as may be specified in,\nand utilised in accordance with, any scheme71which the Central\nGovernment may, by notification in the Official Gazette, frame in this behalf\nand such return shall be accompanied by proof of such deposit; and, for the\npurposes of sub-section (1), the amount, if any, already utilised by the\nassessee for the purchase or construction of the new asset together with\nthe amount so deposited shall be deemed to be the cost of the new asset :\nProvided that if the amount deposited under this sub-section is not utilised\nwholly or partly for the purchase or construction of the new asset within the\nperiod specified in sub-section (1), then, -\n(i)\nthe amount by which-\n(a)\nthe amount of capital gain arising from the\ntransfer of the original asset not charged\nunder section 45 on the basis of the cost of\nthe new asset as provided in clause (a) or,\nas the case may be, clause (b) of sub-\nsection (1),\nexceeds\n(b)\nthe amount that would not have been so\ncharged had the amount actually utilised by\nthe assessee for the purchase or\nconstruction of the new asset within the\nperiod specified in sub-section (1) been the\ncost of the new asset,\nshall be charged under section 45 as income of the\nprevious year in which the period of three years\nfrom the date of the transfer of the original asset\nexpires; and\n(ii)\nthe assessee shall be entitled to withdraw the\nunutilised amount in accordance with the scheme\naforesaid.\nExplanation. -72[Omitted by the Finance Act, 1992, w.e.f. 1-4-1993. ]]\n5.

1. Sub-section (1) of section 54F of the Act provides that where the capital gain\narises from transfer of any long-term capital asset (hereinafter referred to as the\noriginal asset), other than a residential house and the assessee has within a period of\none year before or two years after the date on which the transfer took place\npurchased or has within a period of three years after that date constructed a new\nresidential house, then no capital gain on transfer of the original asset shall be\ncharged if the cost of new asset is more than the net consideration in respect of the\noriginal asset. On a careful circumspection of sub-section (1), it is clearly discernible\nthat the legislature has given three disjunctive and mutual exclusive modes in which\nthe exemption can be claimed. The use of word 'or' at the relevant places in the\nabove provision leaves nothing to doubt that there are three distinct non-overlapping\nmodes providing for exemption, namely:\nwhere the assessee has, within a period of\none year before the date on which the\ntransfer took place purchased\na\nresidential house;\nwhere the assessee has, within a period of\ntwo years after the date on which the\ntransfer took place purchased,\na\nresidential house;\nwhere the assessee has, has within a\nperiod of three years after that date\nconstructed, a residential house.\n5.2.\nAt this juncture it would be relevant to comprehend the object of enactment\nof section 54F, which can be culled out from its language. Sub-section (1) provides\nfor exemption from capital gain arising from the transfer of original asset where the\nassessee has purchased within a period of one year before or two years after or\nconstructed within three years a new residential house. Sub-section (4) provides that\nwhere the new residential house is not purchased or constructed within the stipulated\nperiods as given under sub-section (1), the assessee will be obliged to deposit the\nunutilized net sale consideration in a designated capital gain scheme bank account\nbefore the date of furnishing of return under section 139(1). In such a scenario, the\nassessee will be allowed exemption qua such amount of deposit as well. Sub-section\n(2) provides that where the assessee purchases or constructs another residential\nhouse within the two/three years, which is different from the residential house\npurchased/constructed by the assessee qualifying for exemption under section 54F,\nthen the amount of exemption allowed under sub-section (1) of section 54F shall be\ndeemed to be the income of the year in which new non-qualifying residential house is\npurchased or constructed. Sub-section (3) provides that where the new qualifying\nresidential house is transferred within a period of three years from the date of its\npurchase or construction etc., the amount for which exemption under sub-section (1)\nof section 54F was allowed on account of investment in such purchase/construction\nof new house, shall be deemed to be the income chargeable under the head 'Capital\ngains' for the year in which such new qualifying residential house is transferred. On a\nconjoint reading of all the four sub-sections of section 54F, it becomes vivid that the\nexemption under this section is granted from capital gain arising on the transfer of\noriginal asset when an assessee purchases or constructs a new residential house\nwithin the prescribed period. It is further pertinent to note that such an exemption is\nnot available for any number of residential houses constructed/purchased by the\nassessee but there is a cap contained in sub-section (2). At the same time, there is\nanother deterrent provision in sub-section (3) which restricts transfer of qualifying\nnew residential house within the stipulated period. An overview of section 54F, in\ntotality, indicates that the object or purpose of its enactment is to encourage building\nof new residential house for an assessee and then staying invested in it for certain\nduration. So long as such an object is achieved and there is no breach of any of the\nexpress conditions, the provision should be interpreted in such a manner as\nadvances its purpose and not frustrates it. What the legislature has contemplated for\nallowing exemption under section 54F is that: 'the assessee has within a period\nof three years after that date constructed, one residential house'. It is only the closing\ndeadline of three years from the date of transfer of the original asset, which has been\nstipulated for completing the construction.\n5.3.\nThe contention of the AO that even though no opening time limit is\nenshrined in the provision for starting construction of a new qualifying residential\nhouse, it should be logically inferred with respect to the date of transfer of original\nasset as is the case with the purchase of a new residential house within one year\nbefore or two years after the date of transfer of the original asset sans merits. It is\npalpable on a simple reading of the provision that there is no reference whatsoever to\nthe opening time limit from which the process of purchasing or constructing a new\nresidential house has to begin. Similar to a situation when an assessee completes\nthe process of purchasing a new residential house within one/two years, if an\nassessee completes the process of construction of a new residential house within a\nperiod of three years from the date of transfer of the original asset, he becomes\nentitled to exemption. In the absence of any opening deadline given in the provision\nfor purchase of land or start of construction thereon, it is wholly impermissible to read\nthe date of transfer of the original asset as the starting period under this mode.\nIt is important to bear in mind that sale of an original asset and side-by-side\npurchase or construction of a new residential house is not only an important decision\nof one's life having repercussions for a longer period of time, but is also a time\nconsuming matter as the concerned person has to mobilise his resources. If a plot is\npurchased in contemplation of ensuing construction within a reasonable time even\nbefore the transfer of the original asset, there can be no fetters on the allowability of\nexemption under section 54F, if other conditions are fulfilled. What is a reasonable\nperiod depends on the facts and circumstances of each case. A plot of land\npurchased prior to such a reasonable period cannot ordinarily be viewed as having\nbeen purchased for starting construction of a new residential house. It, ergo, follows\nthat so long as the construction of a new residential house is completed within a\nperiod of three years from the date of transfer of the original asset, the benefit of\nexemption under section 54F has to be allowed with reference to whole of the cost of\nplot or the cost of construction thereon, even if such a process of purchasing the plot\nor constructing the house started within a reasonable time prior to the date of transfer\nof the original asset.\nThe AO tried to fortify his point of view of having the date of transfer of the\noriginal asset as the date of initiation of process of construction by arguing that the\nsame is implicit in the provision in as much as the net consideration from the transfer\nof original asset is required to be utilized for constructing a new residential house and\nit is not possible to start constructing a new residential house unless the original\nasset is transferred and the full value of consideration is realized. This argument\ntendered on behalf of the AO cannot be approved. It is nowhere stipulated in the\nprovision that only the sale consideration realized from the transfer of the original\nasset has to be necessarily used for purchasing or constructing a new residential\nhouse so as to qualify for exemption under section 54F. The requirement, couched in\nthe language of sub-section (1) itself, is that 'the assessee has, within a period of\none year before or two years after the date on which the transfer took place\npurchased, or has within a period of three years after that date constructed, a\nresidential house'. The intent and the stipulation of the provision is to purchase or\nconstruct a new residential house. It is nowhere provided that only the sale proceeds\nof the original asset should be utilized for this purpose. It is open to an assessee to\nuse either own or borrowed funds for the purpose of purchase or construction of a\nnew residential house. This view is further amplified from the mandate of the first\nmode of granting exemption under this provision, which is, that the assessee has\npurchased a new residential house within a period of one year before the date of\ntransfer of the original asset. Possibility of availing exemption under this mode can be\nonly in a scenario where the original asset has not been transferred and the sale\nconsideration of the original asset is not realized, except to the extent of advance\nreceived, if any, on the ensuing sale of the original asset. Thus it is far-fetched to\nargue that utilization of only the sale consideration from the transfer of original asset\nis to be utilized for purchase or construction of a new residential house so as to\nqualify for the exemption. Therefore, the contention of the AO that for availing\nexemption under section 54F, it is mandatory to purchase or construct a new\nresidential house only by using the consideration realized on the transfer of original\nasset is repelled. Once this argument fails, the edifice of the AO's contention that the\nstarting point would consequently be the date of transfer of the original asset falls flat\non the ground.\n5.4.\nIt is seen that whereas the AO canvassed a view that the period of three\nyears for the purposes of construction of a new residential house, as given in the\nthird mode, should be reckoned from the date of transfer of the original asset. It is\nopined that, the view taken by the AO is not in accordance with law. It has been held\nhereinabove that above discussed three modes are distinct from each other and the\navailability of exemption under section 54F has to be tested on the touchstone of the\nmandate given in each of them separately. Though technically, the AO was correct in\nhis view in restricting himself to the above noted third mode by considering a period\nof three years only, but fell into an error when he considered the date of initiation of\nthe process of construction as the date of transfer of the original asset.\nThe assessee in her written submission relied on the decision given by the\nHon'ble Income Tax Appellate Tribunal, Pune Bench B in the case of Sohanlal\nMohanlal Bhandari Vs. ACIT Circle-1, Nashik vide order dated 28/03/2019 wherein it\nwas held that so long as construction of a new residential house is completed within\na period of three years from date of transfer of original asset, benefit of deduction\nunder section 54F has to be allowed with reference to whole of cost of plot or cost of\nconstruction thereon, even if such a process of purchasing plot or constructing house\nstarted within a reasonable time anterior to date of transfer of original asset. In view\nof the facts discussed & respectfully following the judicial decision quoted above, it is\nhereby held that the assessee is eligible for deduction u/s 54F of the Act against the\ncost of plot of land even if the same was purchased prior to the period of one year\nbefore the date of transfer of original asset.\n5.\nDuring the assessment proceedings, the AO also disallowed the deduction\nclaimed against construction expenses by taking ground that the assessee failed to\nfurnish the supporting documentary evidences such as construction plan, bank\naccount statement, bills/vouchers etc. During the appellate proceedings, the\nappellant claimed that the AO erred in disallowing the construction expenses by\nneglecting the documentary evidences filed before him and furnished the copy of\nconstruction plan, bank account statement, bills/vouchers, photocopy of residential\nhouse etc. The same were perused & found to be in order.\nIn view of the facts discussed & respectfully following the judicial decision quoted\nabove, the contention of the appellant is accepted and hence it is held that assessee is\neligible for deduction u/s 54F of the Act against the cost of plot of land as well as\nconstruction expenses incurred for residential house property. Therefore addition made of\nRs.4,24,08,090/- to the total income of the assessee on account of disallowance of section\n54F of the Act is hereby deleted. Accordingly, Ground No. 1 is allowed.\nThe Revenue being aggrieved with the order of CIT(A) has\ncarried the matter in appeal before us.\n6.\nWe have heard the learned Authorized Representatives of both\nparties, perused the orders of the lower authorities and the\nmaterial available on record, as well as considered the judicial\npronouncement and CBDT Circular No.667, dated 18.10.1993\nthat were pressed into service by them to drive home their\nrespective contentions.\n7.\nDr. Sachin Kumar, the learned Senior Departmental\nRepresentative (for short “Ld. DR”), submitted that as the assessee\nhad purchased the plot on which the new residential property is\nstated to have been constructed much before the period of one year\nprior to his first transaction of sale of the “capital assets\",\ntherefore, the cost of investment in the said land was not eligible\nfor exemption under Section 54F of the Act. Elaborating further\non his contention, the Ld. DR submitted that as the assessee failed\nto complete the construction within the prescribed period of three\nyears from the date of transfer of the ‘capital assets', therefore, the\ninvestment made by him towards the impugned construction of\nthe super-structure was also not eligible for exemption under the\naforesaid statutory provision. The Ld. DR to buttress his claim\nhad drawn support from the CBDT Circular No.667, dated\n18.10.1993. The Ld. DR submitted that in the aforesaid Circular\nNo.667 (supra), it was provided that an assessee was obligated to\ncomplete the construction within the time specified under Section\n54/54F of the Act. The Ld. DR further submitted that as the\nassessee, had failed to substantiate based on clinching\ndocumentary evidence that he had completed the construction of\nthe new residential house within the prescribed period, i.e. three\nyears from the date of the transfer transactions, therefore, the A.O.\nhad rightly declined his entire claim for exemption raised under\nSection 54F of the Act.\n8.\nPer Contra, Shri J.J. Varun, C.A. the learned Authorized\nRepresentative (for short “ld.AR”) for the assessee, rebutted the\naforesaid contentions of the Ld. DR. It was submitted by him that\nas there was no opening/anterior time limit provided in sub-\nsection (1) of Section 54F of the Act, within which the assessee was\nobligated to have purchased the plot on which the new residential\nhouse was constructed within the prescribed period i.e. within\nthree years from the date of the transfer transaction, therefore, the\nA.O. while quantifying the exemption under Section 54F of the Act\nhad wrongly discarded the investment made by the assessee in\npurchase of the residential plot on which the new residential house\nwas constructed. The Ld. AR to buttress his contention has drawn\nsupport from the order of ITAT, Pune Bench“B” in the case of\nSohanlal Mohanlal Bhandari Vs. ACIT, Circle 1, Nashik, (2019)\n104 Taxman.com 116 (Pune). Apart from that, the Ld. AR\nsubmitted that as the assessee based on supporting documentary\nevidence had substantiated the investment made by him towards\nthe construction of the new residential house within the prescribed\nperiod, therefore, there was no justification for the A.O. to have\ndrawn inferences regarding the said factual position as was\ndiscernible based on the documents/material available before\nhim. Alternatively, the Ld. AR submitted that as the assessee has\ndisposed of the new residential house within the lock-in period of\nthree years, therefore, he had as per sub-section (3) of Section 54F\nof the Act, offered the subject LTCG for tax in his return of income\nfor the year of transfer i.e., AY 2024-25 (copy of the return of\nincome for AY 2024-25 placed on record).\n9.\nWe have thoughtfully considered the contentions advanced\nby the Ld. Authorized Representatives on the aforesaid issues in\nthe backdrop of the orders of the lower authorities.\n10.\nControversy involved in the present appeal primarily hinges\naround two issues, viz. (i) whether the investment made by the\nassessee towards the purchase of the plot (on which construction\nof the new residential house is stated to have been carried out) i.e\npurchased 1½ year before the first transaction of sale of the capital\nasset carried out on 17.06.2021 will form part of his investment\neligible for exemption u/s 54F of the Act?; AND (ii). that as to\nwhether or not the assessee is entitled for the claim of exemption\nu/s 54F for the investment claimed by him to have been made\ntowards the construction of the new residential house based on\nthe documents that were placed on record in the course of the\nproceedings before the authorities below?\n11.\nAdmittedly, it is a matter of fact borne from the record that\nthe assessee had carried out multiple transactions of sale of\ncapital assets over the period 17.06.2021 to 09.03.2022 for an\naggregate sale consideration of Rs.5,74,09,286/-, and had claimed\nthe entire amount of “Long Term Capital Gains”(LTCG) of\nRs.4,24,08,090/- as exempt under Section 54F of the Act.\nHowever, as observed hereinabove, the A.O. had declined the\nassessee's claim for exemption u/s 54F for the reasons, which as\nextracted from the body of the assessment order are culled out as\nunder:\na) The assessee had purchased immovable property on 12.12.2019. Further, the\nassessee had sold the 1st immovable property on 17.06.2021. Hence, the assessee\nmust buy the property within one year before, which comes to 17.06.2020, but the\nassessee has bought the property beyond one year. Hence, the assessee has not\nfollowed the provision of Section 54F(1) of the Act, hence on this point assessee's\nclaim is rejected.\nb) The assessee has stated in the replies that capital gain will be utilized for\nconstruction of residential house on or before 16.06.2024. However, the assessee\nfailed to follow the provision of section 54F(4) of the Act and also not submitted any\ncapital gain account proof of having opened the said account and deposited the\ncapital gain on or before the specified date, as prescribed u/s.54(4) of the I.T. Act,\n1961.\nc) The assessee has provided the photos of under construction house. However, from\nthe photos, it is not confirmed that the under construction property pertains to the\nassessee. Further no supporting documents like approval plan from the concerned\nauthorities, contracts for construction, proof for incurring the expenses against the\nconstruction activity claimed by the assessee (in the form of bank statement duly\nsupported with supporting bills / vouchers, etc.) etc., is furnished to prove the claim of\nassessee's under construction house.\nIn view of the above discussion, the claim of deduction u/s 54F of the Act amounting\nto Rs.4,24,08,090/- is rejected and entire long term capital gain of Rs.4,24,08,090/- is\nproposed to be taxed as 'long term capital gain'.\n12.\nOstensibly, the CIT(A) had dislodged the view taken by the\nA.O. on both the aforementioned issues and had observed, viz. (i).\nthat Section 54F of the Act, though contemplates an outer limit of\nthree years from the date of sale of a capital asset for construction\nof a new residential house by the assessee, but there is no opening\ntime in which the assessee is obligated to purchase the plot on\nwhich the new residential house is constructed; and (ii) that as the\nA.O. had erred by neglecting the documentary evidence that was\nfiled by the assessee to substantiate the investment made by him\ntowards the construction of the new residential house, viz. copy of\nthe construction plan, bank account statement, bills/vouchers\netc., therefore, there was no justification for him to draw adverse\ninferences regarding the assessee's claim of investment in the new\nresidential house and decline the exemption under Section 54F of\nthe Act.\n13.\nBefore proceeding further, we deem it fit to cull out the\nprovisions of Section 54F of the Act which read as under:\n“54F. (1) Subject to the provisions of sub-section (4), where, in the case of an\nassessee being an individual or a Hindu undivided family, the capital gain arises\nfrom the transfer of any long-term capital asset, not being a residential house\n(hereafter in this section referred to as the original asset), and the assessee has,\nwithin a period of one year before or two years after the date on which the\ntransfer took place purchased, or has within a period of three years after that\ndate constructed, one residential house in India (hereafter in this section\nreferred to as the new asset), the capital gain shall be dealt with in accordance\nwith the following provisions of this section, that is to say,—\n(a) if the cost of the new asset is not less than the net\nconsideration in respect of the original asset, the whole of such\ncapital gain shall not be charged under section 45 ;\n(b)\nif the cost of the new asset is less than the net\nconsideration in respect of the original asset, so much of the\ncapital gain as bears to the whole of the capital\ngain the same proportion as the cost of the\nnew asset bears to the net consideration, shall not\nbe charged under section 45:\nProvided that nothing contained in this sub-section shall apply where-\n(a) the assessee,-\n(i) owns more than one residential house, other than the new asset, on the date\nof transfer of the original asset; or\n(ii) purchases any residential house, other than the new asset, within a period of\none year after the date of transfer of the original asset; or\n(iii) constructs any residential house, other than the new asset, within a period of\nthree years after the date of transfer of the original asset; and\n(b) the income from such residential house, other than the one residential house\nowned on the date of transfer of the original asset, is chargeable under the head\n\"Income from house property\".\nExplanation.—For the purposes of this section, —\n"net consideration", in relation to the transfer of a capital asset, means the full\nvalue of the consideration received or accruing as a result of the\ntransfer of the capital asset as reduced by any\nexpenditure incurred wholly and exclusively in\nconnection with such transfer.\n(2) Where the assessee purchases, within the period of two years after the date\nof the transfer of the original asset, or constructs, within the period of three\nyears after such date, any residential house, the income from which\nis chargeable under the head \"Income from house property\", other than the new\nasset, the amount of capital gain arising from the transfer of the original\nasset not charged under section 45 on the basis of the cost of such new\nasset as provided in clause (a), or, as the case may be, clause (b), of sub-\nsection (1), shall be deemed to be income chargeable under the head \"Capital gains\" relating\nto long-term capital assets of the previous year in which such residential house\nis purchased or constructed.\n(3) Where the new asset is transferred within a period of three years from\nthe date of its purchase or, as the case may be, its construction, the amount of capital\ngain arising from the transfer of the original asset not charged under section\n45 on the basis of the cost of such new asset as provided in clause (a), or, as the\ncase may be, clause (b) of sub-section (1) shall be deemed to be income\nchargeable under the head \"Capital gains\" relating to long-term capital assets\nof the previous year in which such new asset is transferred.\n(4) The amount of the net consideration which is not appropriated by the\nassessee towards the purchase of the new asset made within one year before the\ndate on which the transfer of the original asset took place, or which is not\nutilised by him for the purchase or construction of the new asset before the date\nof furnishing the return of income under section 139, shall be deposited by him\nbefore furnishing such return [such deposit being made in any case not later\nthan the due date applicable in the case of the assessee for furnishing the return\nof income under sub-section (1) of section 139] in an account in any such bank\nor institution as may be specified in, and utilised in accordance with, any\nscheme which the Central Government may, by notification in the Official\nGazette, frame in this behalf and such return shall be accompanied by proof of\nsuch deposit; and, for the purposes of sub-section (1), the amount, if any,\nalready utilised by the assessee for the purchase or construction of the new asset\ntogether with the amount so deposited shall be deemed to be the cost of the new\nasset :\nProvided that if the amount deposited under this sub-section is not utilised\nwholly or partly for the purchase or construction of the new asset within the\nperiod specified in sub-section (1), then, —\n(i) the amount by which-\n(a) the amount of capital gain arising from the transfer of the original asset not\ncharged under section 45 on the basis of the cost of the new asset as provided\nin clause (a) or, as the case may be, clause (b) of sub-section (1), exceeds\n(b) the amount that would not have been so charged had the amount actually\nutilised by the assessee for the purchase or construction of the new asset within\nthe period specified in sub-section (1) been the cost of the new asset,\nshall be charged under section 45 as income of the previous year in which the\nperiod of three years from the date of the transfer of the original asset expires;\nand\n(ii) the assessee shall be entitled to withdraw the unutilised amount in\naccordance with the scheme aforesaid.\n14. Ostensibly, the sub-section (1) of Section 54F of the Act, inter\nalia, contemplates, that in a case where the assessee has, within\na period of one year before or two years after the date on which the\ntransfer took place purchased; or has within a period of three years\nafter that date constructed, one residential house in India\n(hereinafter under referred to as the “new asset”), the capital gain\nshall be dealt with in accordance with the provisions of the section,\nviz. (a). if the cost of the new asset is not less than the net\nconsideration in respect of the original asset, the whole of such\ncapital gain shall not be charged under Section 45 of the Act; (b).\nif the cost of the new asset is less than the net consideration in\nrespect of the original asset, so much of the capital gain as bears\nto the whole of the capital gain the same proportion as the cost of the\nnew asset bears to the net consideration shall not be charged\nunder Section 45 of the Act.\n15. On close scrutiny of the aforesaid statutory provision, it\ntranspires that though the “purchase” of a new residential house\nis circumscribed by a specific opening and closing time limit i.e. a\nwindow of one year before or two years after the date on which the\nsale of the capital asset had taken place, but interestingly, the\nconstruction of a residential house has only the outer limit i.e. a\nperiod of three years to be reckoned from the date on which the\ncapital asset had been transferred. In the absence of any time limit\nhaving been provided in Section 54F of the Act within which an\nassessee is obligated to either purchase the plot on which the new\nresidential house is to be constructed; or start the construction,\nbut only contemplates an outer limit of three years from the date\nof the transfer of the capital asset within which the new residential\nhouse is to be constructed, therefore, we concur with the CIT(A)\nthat there was no justification for the A.O. to conclude that as the\nresidential plot on which the new residential plot is stated to have\nbeen constructed by the assessee was purchased by him on\n12.12.2019, i.e prior to the one year window reckoned from the\ndate of the first transfer transaction on 17.06.2021 (supra),\ntherefore, the investment made in the same was not eligible for\nexemption under Section 54F of the Act. Once again, we may\nherein observe that as Section 54F(1) of the Act does not lay down\nany anterior/opening time limit or “one year before” window, i.e.\nany specific period prior to the transfer of the capital asset for the\npurchase of a residential plot/land on which the new residential\nhouse is to be constructed; nor circumscribes any such time limit\nfor starting the construction of the said new residential house prior\nto the transfer of the said capital asset, therefore, the said casus\nomissus could not have been filled by the AO. In short, now when\nthe legislature in all its wisdom, has unlike the obligation cast\nupon the assessee to purchase a new residential house within the\nbracketed time period, i.e. one year before or two years after the\ndate on which the transfer of the capital asset took place, not\nplaced any such fetter when it comes to construction of a new\nresidential house, which has only an outer limit of three years from\nthe date of transfer of the capital asset within which the same is\nto be constructed by the assessee, therefore, we are unable to\nsubscribe to the view taken by the A.O. We say so, for the reason,\nthat the AO had observed, that as the investment in the residential\nplot on which construction of the new residential house is stated\nto have been carried out was made by the assessee not within the\n“one year window” that was available to him before the first\ntransfer transaction on 17.06.2021 i.e. not beyond 17.06.2020,\nbut was purchased by him much prior thereto on 12.12.2019,\ntherefore, the same was not eligible for exemption under Section\n54F of the Act. Our aforesaid view, that neither the purchase of\nthe residential plot (on which the new residential house is\nconstructed) nor the construction of the new residential house on\nthe same is statutorily required to be subsequent to the date of the\nsale of the capital asset is supported by the judgment of the\nHon'ble High Court of Allahabad in the case of Commissioner of\nIncome Tax vs. H.K. Kapoor (Decd.) [1998] 234 ITR 753 (A11),\nwhich was rendered in the context of the pari materia provisions\nof Section 54 of the Act. The indulgence of the Hon'ble High Court\nwas, inter alia, sought for adjudicating the following substantial\nquestion of law:\n\"2. Whether, on the facts and the circumstances of\nthe case, the Income-tax Appellate Tribunal was\ncorrect in law in holding that for availing of the\nbenefits under section 54 of the Income-tax Act,\n1961, it is not necessary that the construction of the\nnew house should begin after the sale of the old\nhouse?\"\nThe Hon'ble High Court answered the aforesaid issue in favor of\nthe assessee and approved the view taken by the Tribunal. It was\nobserved by the Hon'ble High Court that the exemption of capital\ngains could not be refused to the assessee simply on the ground\nthat the construction of the new residential house had begun\nbefore the sale of the old residential property. The Hon'ble High\nCourt relied upon the judgment of the Hon'ble High Court of\nKarnataka in the case of CIT vs. J.R. Subramanya Bhat [1987]\n165 ITR 571 (Kar), and observed, that it was immaterial that the\nconstruction of the new building was started before the sale of the\nold building. Accordingly, the Hon'ble High Court concurred with\nthe view taken by the Tribunal, and observed, that the capital\ngains arising from the sale of the old property to the extent it was\ninvested in the construction of the new residential property was\nexempt under Section. 54 of the Act. For the sake of clarity, the\nobservations of the Hon'ble High Court are culled out as under:\n“4. In the alternative, the assessee pleaded before the Income-\ntax Officer that he started the construction of another\nresidential house at 64, Surya Nagar, Agra, on March 10,\n1963, and that came to be completed within two years of the\nsale of the Golf Link house and that the capital gains to the\nextent of being invested in the construction of the Surya Nagar\nhouse was not taxable under Section 54 of the Act. The\nIncome-tax Officer, however, took the view that the assessee\nhad started construction of this house prior to the sale of the\nGolf Link house. He, therefore, rejected the alternative\ncontention too of the assessee.\n5. On appeal, the Appellate Assistant Commissioner had\nagreed with the Income-tax Officer.\n6. On further appeal, the Appellate Tribunal\nreproducing Section 54 in its order found as follows:\n\"A perusal of the above provision will show that it does not lay\ndown that the construction of any house must be begun after the\nsale of the old residential house and that the sale proceeds of the\nold residential house must be used for the construction of the\nnew residential house. We are, therefore, of the opinion that the\nassessee complied with the requirement of Section 54 in respect\nof the construction of the house at 64, Surya Nagar, Agra, and\nthat he is entitled to the exemption out of the capital gains from\nthe sale of the house at Golf Link to the extent of the cost of\nconstruction of the house at 64, Surya Nagar, Agra. We,\ntherefore, direct the Income-tax Officer to modify the\nassessment accordingly.\"\n7. The question for consideration is whether exemption on\ncapital gains could be refused to the assessee simply on the\nground that the construction of the Surya Nagar, Agra house,\nhad begun before the sale of the Golf Link house. Similar\nquestion came up for consideration before the Karnataka High\nCourt in the case of CIT v. J.R. Subramanya Bhat [1987] 165\nITR 571. In the case before the Karnataka High Court, the date\nof the sale of the old building was February 9, 1977. The\ncompletion of the construction of the new building was in\nMarch, 1977, although the commencement of construction\nstarted in 1976. On these facts, the Karnataka High Court\nheld that it was immaterial that the construction of the new\nbuilding was started before the sale of the old building. We\nfully agree with the view taken by the Karnataka High Court.\nThe Appellate Tribunal was right in holding that capital\ngains arising from the sale of the Golf Link house to the\nextent it got invested in the construction of the Surya\nNagar house, will be exempted under Section 54 of the\nAct.\"\n(emphasis supplied by us)\nAlso, we find that a similar view has been taken by the coordinate\nbench of the Tribunal i.e., ITAT Pune Bench “B” in the case of\nSohanlal Mohanlal Bhandari Vs. ACIT, Circle-1, Nashik (2019)\n104 taxmann.com 161 (Pune).\n16. Apropos the Ld. DR's contention that as the assessee had\nnot completed the construction of the new residential house within\nthe prescribed period envisaged in Section 54F of the Act,\ntherefore, it was for the said reason also disentitled from raising a\nclaim of exemption under the said statutory provision, we are\nunable to accept the same. We are of the firm conviction that the\nexemption under Section 54F cannot be denied merely because\nthe construction of the house was not complete in all respects\nwithin three years of the transfer of the capital asset. As Section\n54F is a beneficial provision promoting the construction of\nresidential houses, therefore, it should be construed liberally. The\nessence of Section 54F is that where the assessee has invested the\n\"net sale consideration” within the stipulated time period, then\neven if the construction was not fully habitable, he will be entitled\nfor the exemption under the said statutory provision. Our\naforesaid view is fortified by the judgment of the Hon'ble High\nCourt of Karnataka in the case of CIT, Bangalore Vs. B.S\nShantha Kumari, of 2014, dated 13.07.2015 and\nthat of the Hon'ble High Court of Madhya Pradesh in the case of\nSmt. Shashi Varma Vs. CIT (1997) 224 ITR 106 (MP).\n17.\nApropos the observation of the A.O. that the assessee had\nfailed to substantiate his claim of having invested towards the\nconstruction of a new residential house based on supporting\ndocuments, viz. copy of the construction plan, bank account\nstatement, bills/vouchers etc., we find that the A.O. had observed\nthat as the assessee except for placing on record the photographs\nof the under-construction house had failed to place on record any\nsupporting evidence like approval plan from the concerned\nauthorities, contract for construction, proof for incurring the\nexpenses against the construction activity as claimed by him i.e.\nbank statements duly supported by bills/vouchers etc., therefore,\nthe said unsubstantiated claim qua the investment that was\nclaimed by him to have been made towards the construction of the\nnew residential house could not be summarily accepted. Although\nthe CIT(A) had dislodged the observation of the A.O., but a perusal\nof his order reveals that the same has been done based on general\nobservations. The CIT(A) had though stated in his order that he\nhas perused the documentary evidence that was filed by the\nassessee before the A.O and found the same to be in order, but we\nfind that there is no whisper in his order about any such specific\nmaterial/evidence based on which he had accepted the investment\nclaimed by the assessee to have been made in the construction of\nthe new residential house within the prescribed period. In fact,\nthere is no reference by the CIT(A) of any material which\nsubstantiated the actual investment made by the assessee in the\nconstruction of the new residential house, i.e. the bank statement,\nconstruction contract (if any), bills/vouchers of material and\nlabour, valuation report, etc. We are unable to subscribe to the\nsummary acceptance of the assessee's claim of having invested in\nthe construction of the new residential house within the prescribed\nperiod by the CIT(A). We thus, in terms of our aforesaid\nobservations, are of the firm conviction, that the matter is required\nto be restored to the file of the A.O., for the limited purpose of\nverifying the assessee's claim of having invested up to the date of\nfurnishing the return of income under Section 139 of the Act\n(including investment made towards the purchase of the\nresidential plot on which the new residential house is stated to\nhave been constructed, i.e SY. No.17/8 situated at Dattagalti\nVillage, Kasaba Hobli, Mysore Taluk, vide registered purchase\ndeed No.7877 dated 12.12.2019) based on which he has raised a\nclaim for exemption under Section 54F of Rs.4,24,08,090/-.\nNeedless to say, the A.O. shall in the course of the set-aside\nproceedings afford a reasonable opportunity of being heard to the\nassessee who shall remain at liberty to substantiate his claim\nbased on fresh documentary evidence, if any.\n18.\nBefore parting, we may herein observe, that the Ld. AR has\nstated before us that the assessee had transferred the subject new\nresidential house i.e., Sy.No.17/8 situated at Dattagalti Village,\nKasaba Hobli, Mysore Taluk during the A.Y. 2024-25 i.e. within\nthe lock-in period, and had offered the subject \"Long Term Capital\nGains\" (LTCG) of Rs.4,24,08,090/- as his income in the said year.\nThe Ld. AR to support his claim has placed on our record the copy\nof the return of income along with the computation of income of\nthe assessee for the AY 2024-25 which, prima facie, supports his\naforesaid claim. As the aforesaid facts may have a strong bearing\nqua the quantification of the tax liability of the assessee for the\nsubject year before us, therefore, for the said reason we deem it\nnecessary to give directions to the A.O. on the said issue. In case,\nthe claim of the assessee of having invested in the construction of\na new residential house during the subject year before us i.e. A.Y.\n2022-23 is in the course of the set-aside proceedings not found to\nbe in order, which thus, renders him exigible for the consequential\ntax liability on the “Long Term Capital Gains” (LTCG) or any part\nthereof during the subject year i.e AY 2022-23, then, as a fall out\nthereof, the offering of the LTCG on the subject property for tax on\nthe subsequent transfer of the new residential house during the\nlock-in period i.e AY 2024-25 to the said extent will be rendered as\nredundant and otiose. If that be so, then the A.O. shall make\nappropriate adjustments in the hands of the assessee for the\nsubject year i.e AY 2022-23 considering the tax realized by the\nrevenue on the subject LTCG in AY 2024-25, failing which the\nsame would tantamount to double taxation in the hands of the\nassessee which is de hors Article 265 of the Constitution of India.\nOur aforesaid view is fortified by the judgment of the Hon'ble\nSupreme Court in the case of ITO, Lucknow Vs. Bachulal\nKapoor (1996) 60 ITR 74 (SC). The Hon'ble Apex Court in its\norder, had observed in the context of the facts involved in the case\nbefore them, that if the assessment proceedings initiated under\nSection 34 of the Income Tax Act, 1922 in the hands of the\nindividual members of the HUF culminated in the assessment of\nHUF, then the appropriate adjustment is to be made by the ITO in\nrespect of the tax realized by the Revenue in respect of the part of\nthe income of the family that was assessed in the hands of the\nindividuals of the said family. It was observed that by doing so, it\nwould not result to the reopening of the final order of assessment,\nbut in reality, to arrive at the correct figure of tax payable by the\nHUF. We thus, in terms of our aforesaid observations direct the\nAO that in case if the assessee's claim for exemption u/s 54F or\nany part thereof is not found by the AO to be in order, then\nconsidering the fact that the entire amount of said LTCG of Rs.\n4,24,08,090/- (as claimed by the assessee based on the return of\nincome placed on our record) has been offered by him as his\nincome under Section 54F(3) in AY 2024-25 i.e the year in which\nthe subject new residential house was transferred during the lock-\nin period, he shall carry out appropriate adjustments in respect of\nthe tax realized by the revenue on the said amount of LTCG or any\npart thereof, as per the extant law.\n19. Resultantly, the appeal filed by the Revenue is partly allowed\nfor statistical purposes.\nOrder pronounced in the Open Court on 12th June, 2025.\nSd/-\n(श्री मधुसूदन सावडिया)\n(MADHUSUDAN SAWDIA)\nलेखा सदस्य/ACCOUNTANT MEMBER\nSd/-\n(श्री रवीश सूद)\n(RAVISH SOOD)\nन्यायिक सदस्य/JUDICIAL MEMBER\nHyderabad, dated 12.06.2025.\n**TYNM/sps\nआदेशकी प्रतिलिपि अग्रेषित/