SUMIT H BHAGCHANDANI,AHMEDABAD vs. DCIT, CIRCLE 3(1)(1), AHMEDABAD

Facts

The assessee sold a plot of land, incurring long-term capital gains, and claimed a deduction under Section 54F, which included actual construction expenditure and a deposit in the Capital Gains Account Scheme. The Assessing Officer (AO) applied the statutory formula for Section 54F, determining an eligible deduction lower than claimed, leading to a disallowance of Rs.3,91,661/-. The CIT(A) upheld the AO's order, stating that the Capital Gains Account Scheme deposit preserves eligibility but does not override the statutory computation formula and the assessee failed to prove utilization of the deposited funds.

Held

The Tribunal upheld the disallowance made by the lower authorities, affirming that deduction under Section 54F must be computed strictly according to the statutory formula, which accounts for actual utilization or irrevocably committed investment. It clarified that merely depositing funds in the Capital Gains Account Scheme preserves eligibility for exemption but does not automatically entitle the assessee to the entire claimed deduction without demonstrating actual utilization or commitment. The assessee failed to provide evidence that the excess claimed amount represented actual or committed cost of construction as on the relevant date.

Key Issues

Whether the deduction under Section 54F should be allowed for the entire amount claimed by the assessee, including the deposit in the Capital Gains Account Scheme, or if it is to be restricted based on the statutory proportionate formula. The core issue is the interpretation and application of the computation mechanism for Section 54F deduction, particularly concerning the treatment of amounts deposited in the Capital Gains Account Scheme.