C.R.VISWANATH HUF,CHENNAI vs. ITO, CHENNAI

This appeal of the assessee is directed against the order of the Commissioner of Income Tax (Appeals) -7, Chennai, dated 30.01.2017 and pertains to assessment year 2012-13.

Shri T.N. Seetharaman, the Ld.counsel for the assessee, submitted that the Assessing Officer made addition towards capital gain on sale of a property by the assessee at Mylapore to the extent of `1,13,96,715/- while completing the assessment under Section 143(3) of the Income-tax Act, 1961 (in short 'the Act'). According to the Ld. counsel, the property at Mylapore was sold by means of registered sale deed dated 27.06.2011 for a total consideration of `1,14,76,000/-. The assessee has also claimed deduction under Section 54F of the Act. In fact, the assessee has purchased a flat and also paid `1,15,00,000/- to Shri G. Balarajan for purchase of flat. Therefore, according to the Ld. counsel, the assessee has invested in a new property over and above the capital gain. Merely because the property was not registered, according to the Ld. counsel, it cannot be said that the assessee is not entitled for exemption under Section 54F of the Act.

Referring to the assessment order, the Ld.counsel for the assessee submitted that the assessee has paid `1,15,00,000/- on the basis of agreement entered for purchase of flat with Shri G. Balarajan, who is a flat promoter. In fact, Shri Balarajan acknowledged the receipt of `1,15,00,000/-. According to the Ld. counsel, the Assessing Officer, however, rejected the claim of the assessee under Section 54 of the Act on the ground that the document was not registered in the name of the assessee. According to the Ld. counsel, the assessee filed a rectification petition under Section 154 of the Act claiming that the entire capital gain was invested in purchasing a new property, therefore, the assessee is entitled for exemption under Section 54 of the Act. The Assessing Officer rejected the rectification petition filed by the assessee under Section 154 of the Act on the ground that there is no error in the assessment order. According to the Ld. counsel, since the investment was made within the period provided for filing of the return of income under Section 139(1) of the Act, the assessee is eligible for deduction under Section 54 of the Act.

On the contrary, Shri Asish Tripathy, the Ld. Departmental Representative, submitted that even though the assessee paid `1,15,00,000/- to the flat promoter for purchasing a new house property, the flat was not registered in his name till 21.03.2015. Therefore, according to the Ld. D.R., the Assessing Officer found that the assessee is not eligible for deduction under Section 54 of the Act. The Assessing Officer also rejected the rectification petition filed by the assessee under Section 154 of the Act on the ground that there is no error.

We have considered the rival submissions on either side and perused the relevant material available on record. It is not in dispute that the assessee sold his property for a total sale consideration of `1,14,76,000/- by means of registered sale deed dated 27.06.2011. The long term capital gain computed is `1,13,96,715/-. It is not in dispute that the assessee has paid `1,15,00,000/- to the flat promoter Shri G. Balarajan.

We have carefully gone through the provisions of Section 54 of the Act. Section 54 of the Act clearly says that when the assessee transferred a long term capital asset and constructed one residential house in India, then the assessee is eligible for deduction under Section 54 of the Act. In this case, the assessee entered into an agreement for purchase of flat from Shri Balarajan, who is a flat promoter. The assessee has also paid `1,15,00,000/-. Merely because the assessee could not get the registered sale deed before the due date for filing of return of income under Section 139(1) of the Act, this Tribunal is of the considered opinion that it cannot be a reason to reject the claim of the assessee under Section 54 of the Act. The fact that the assessee has paid `1,15,00,000/- even though the capital gain was `1,13,96,715/- was brought to the notice of the Assessing Officer during the assessment proceeding under Section 143(3) of the Act. The Assessing Officer has taken a view that the registered sale deed was not completed, therefore, the error pointed out by the assessee by means of petition under Section 154 of the Act cannot be entertained.

Since the assessee has paid entire capital gain to the flat promoter for purchasing the flat and the flat was under construction, this Tribunal is of the considered opinion that the assessee is eligible for deduction under Section 54 of the Act. In other words, the assessee utilized the entire capital gain for construction of new residential house. Therefore, we are unable to uphold the orders of both the authorities below. Accordingly, the orders of both the authorities below are set aside and the Assessing Officer is directed to grant deduction under Section 54 of the Act.

In the result, the appeal filed by the assessee is allowed.