ITAT: Investment in Residential Property is Eligible for Deduction Under Section 54 Income Tax Act

ITAT: Investment in Residential Property is Eligible for Deduction Under Section 54 Income Tax Act

The Income Tax Appellate Tribunal (ITAT), Chennai by its two-member bench of V. Durga Rao (Judicial Member) and G. Manjunatha (Accountant Member), while adjudicating an appeal filed in the matter of Shri T. Pandian vs. The Income Tax Officer, observed that even though the assessee has not invested the sale proceeds in Capital Gain Account Scheme, but complied with the conditions under section 54F (1) by purchasing an independent house by executing a sale agreement.

In the present case, the assessee had filed his return of income on 20 June, 2016 for the assessment year 2016-2017 declaring an income of Rs. 9,88,060. The return filed by the assessee was processed under section 143(1) of the Income Tax Act, 1961 [Act in short].

Thereafter, the case was selected for scrutiny under CASS and notice under section 143(2) of the Act was issued on 4 August, 2017 and duly served on the assessee. After following due procedure, the Assessing Officer has completed the assessment under section 143(3) of the Act dated 21 December, 2016.

In the assessment order, the Assessing Officer has noted that the assessee has sold the property for a consideration of Rs. 60,00,000 and also claimed sale expenses of Rs. 9,220. The assessee had also received Rs.2,00,00,000 for the property of 2.09 acres. The assessee has claimed deduction under section 54F in respect of property purchased for consideration of 2,00,00,000.

After considering the explanations of the assessee against the show- cause notice, the Assessing Officer denied the claim of deduction under section 54F of the Act on the ground that the assessee had not fulfilled the procedural requirement laid down by the law of depositing into the capital gain account scheme with a nationalized bank before the due date of furnishing of return.

Accordingly, the Assessing Officer assessed the income at Rs. 1,99,22,230 by taking capital gains at Rs. 1,89,34,171. On appeal, by considering the submissions of the assessee as well as various case law, the ld. CIT(A) confirmed the disallowance of the deduction claimed under section 54F of the Act.

On being aggrieved, the assessee filed an appeal before the ITAT.

The bench referred the decision passed by High Court in the case of CIT v. Smt. Umayal Annamalai [2020] and observed that, “even though the assessee has not invested the sale proceeds in Capital Gain Account Scheme, but complied with the conditions under section 54F(1) of the Act by purchasing an independent house for a consideration of Rs. 2 crore by executing sale agreement on 9 January, 2016 by paying advance of Rs. 50 lakhs and the remaining amount of Rs. 1.50 crore was paid on the date of registration of sale deed on 04.10.2017, which are not in dispute.”

The ITAT held that, the provisions of section 54F of the Act are beneficial provisions and are to be considered liberally in the aspect of limitation period. But, the investment in residential property is must which the assessee had proved with evidence and complied before the lower authorities, in the present case.

Accordingly, the ITAT set aside the order passed by the ld. CIT(A) and directed the Assessing Officer to allow the deduction section 54F of the Act to the assessee.