COMPLETION OF CONSTRUCTION NOT REQUIRED TO CLAIM EXEMPTION U/S 54: ITAT BANGALORE

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COMPLETION OF CONSTRUCTION NOT REQUIRED TO CLAIM EXEMPTION U/S 54: ITAT BANGALORE

29/11/2024

COMPLETION OF CONSTRUCTION NOT REQUIRED TO CLAIM EXEMPTION U/S 54: ITAT BANGALORE

The Assessing Officer (AO) during the course of assessment noticed that the assessee had sold a property for a consideration of Rs. 18,70,00,000/- and after claiming deduction towards selling expenses and indexation on cost of acquisition has arrived at a long term capital gain of Rs. 12,81,11,799/-.

The AO further noticed that the assessee has claimed exemption u/s. 54 of the Income Tax Act, 1961 to the tune of Rs. 12,06,51,057/- and offered the long term capital gain of Rs. 74,60,742/- to tax.

The AO also noticed that the assessee has claimed exemption u/s. 54 of the Act towards investment in house property which was under construction and not completed.

The assessee furnished before the AO a valuation report certifying the total amount spent on construction to the tune of Rs. 6,66,93,130/-. The assessee also furnished the bank statement wherein the cash withdrawals to the extent of Rs. 4,78,19,230/- is withdrawn towards construction of the said house property.

The AO did not allow the exemption claimed by the assessee for the reason that the construction was not complete and in this regard.

The AO accordingly made a disallowance under section 54 towards the unconstructed portion of the house property.

Aggrieved, assessee filed further appeal before the CIT(A). Before the CIT(A) the assessee filed additional evidence with various construction agreements to support the claim of deduction u/s. 54 of the Act.

The CIT(A) called for a remand report from the AO and since no response was received the CIT(A) proceeded to adjudicate the appeal on merits.

The learned A.R. argued that the CIT(A) has rightly relied on the decision of the Hon'ble Jurisdictional High Court in the case of Sambandam Uday Kumar 345 ITR 389 [Kar] wherein it has been held that the condition precedent for claiming the benefit u/s. 54 of the Act is that the assessee should have parted with the gain realised from sale of property by investing the same in either purchasing or in constructing a residential house and that completion of construction or occupation is not a requirement of law. Accordingly, the learned A.R. argued that the CIT(A) has correctly allowed the exemption u/s. 54 of the Act.

Respectfully following the above decision of the Hon'ble Jurisdictional High Court we hold that there is no infirmity in the decision of the CIT(A) in allowing the exemption u/s. 54 of the Act based on the amount utilised by the assessee towards construction of new house property where the construction is not complete.

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