Deduction u/s 54F allowable despite postdated cheque not cleared or details thereof not mentioned in agreement – ITAT
In a latest judgment, ITAT has allowed Capital Gain Exemption / deduction u/s 54F despite postdated cheque not cleared within the due date for filing of return or details of cheques were not mentioned in agreement – ITAT
ABCAUS Case Law Citation:
ABCAUS 3835 (2024) (01) ITAT
Important Case Laws relied upon by parties:
K Saraswathy alias K Kalpana (Dead) By Legal Heirs vis PSS Somasundaram Chettiar (supreme Court)
Commissioner of Income-tax v. Ogale Glass Works Ltd. 1954] 25 ITR 529 (SC)
ITO vs. Akansha Ranju Pilani
CIT Vs. Shri K Ramachandra Rao, (2015) 56 taxmann.com 163 (Karnataka)
Commissioner of Income-Taxvs. Venkata Dilip Kumar [2019] 111 taxmann.com 180 (Madras)
K Saraswathy alias K Kalpana (Dead) By Legal Heirs v/s PSS Somasundaram Chettiar, 1989 AIR 1553 (SC)
Kishore H. Galaiya v/s ITO [2012] 24 taxmann.com 11 (Mumbai)
Kumarpal Amrutlal Doshi v. Deputy Commissioner of Income-tax
Principal CIT Vs Smt. Charumathi Seshadri
CIT v. Mrs. Hilla J.B. Wadia [1993] 69 Taxman 114 (Bom.)
CIT v. Sardarmal Kothari and another (2008) 302 ITR 286 (Mad.)
Smt. Rajneet Sandhu vs. DCIT (2010) 133 TTJ 0064 (Chandigarh)
Narasimha Raju Rudra Rao vs. ACIT (35 taxmann.com 90) (Hyderabad-Tribunal)
Mrs. Seetha Subramanian v. ACIT [1996] 59 ITD 94 (Mad. – Trib.)
In the instant case, the assessee had challenged the order passed by the National Faceless Appeal Centre (NFAC) in denying exemption claimed u/s 54F of the Income Tax Act, 1961 (the Act).
The appellant assessee filed her return of income which was processed u/s 143(1) of the Act. The case of the assessee was selected for limited scrutiny under CASS. Notice u/s 143(2) of the Act was issued and served upon the assessee. Subsequently, a notice u/s 142(1) of the Act has been issued along with questionnaire.
During the year under consideration, the assessee had sold two immovable property. In the computation of capital gain, assessee has claimed deduction u/s 54F. In support of his claim, assessee has submitted copy of agreement to sell of residential property purchased by her However, as per agreement to sale submitted by her, she has paid only 25% only at the time of agreement out of the total sale consideration towards the purchase of flat.
As the assessee has not paid full amount the AO called for proof of deposit of unutilized amount in capital gain account. The filed a certificate of builder stating that the assessee had issued the post dated cheques, but due to unavoidable circumstances the same were not presented to the bank before the due date for filing of return of income.
This reply of the assessee was not found acceptable to the AO for the reason that neither in the certificate from the builder in which he admitted to have received the post dated cheque nor the reply filed by the assessee contained the details of cheques like cheque no. drawer bank name, date of cheque etc.
According to the AO issuing post dated cheque does not discharge liability of payment. Thus, AO rejected the proof of payment toward investment in house property. Further, the assessee had also not deposited the money in the capital gain account scheme before filing of the return of income.
Therefore, the AO restricted the claim of investment in house property u/s 54F to the amount actually paid as against the claim made.
Before the Tribunal, the assessee furnished a table giving details of actual encashment of cheques by the builder. The assessee relied upon a number of judgments to support various contentions namely;
(i) Whether the failure to deposit in Capital Gain Account Scheme but investing in the Housing sector is only a technical defect and benefit u/s 54F has to be allowed?
(ii) When the cheques for entire housing investment have been issued at the time of agreement with builder before due date of ITR and cheques are encashed belatedly by builder, then whether deposit in Capital Gain Account Scheme is mandatory ?
(iii) Whether the post-dated/undated cheque relates back to the date of issue after the encashment of such cheques ?
The assessee relied upon three judgments on identical facts where it had been held that
(i) As per the agreement the developer was supposed to hand over the possession of plot within 18 months from the date of allotment letter. However, the developer did not deliver the possession. Hence, the assessee could not complete the construction within the prescribed period of 3 years. This delay in construction was not attributable to the assessee. Hon’ble ITAT held that benefit of deduction cannot be denied to the assessee.
(ii) In this case assessee has within stipulated period, made substantial investment towards purchase of new property and just because builder could not complete construction of residential house, it was held by the ITAT that claim of exemption under section 54F cannot be denied.
(iii) When assessee invested a sum in purchase of land, which was invested after date of sale of original asset and before due date of filing of return of income under section 139(1) as per requirement of section 54F, then it was held by the Hon’ble High Court that deduction under section 54F could not be disallowed merely on the ground that no residential house had been constructed and completed on the land within three years from date of sale of the original asset.
The assessee also placed reliance on CBDT circular No. 471 dt. 15/10/1986 and CBDT circular no. 672 dt. 16/10/1993 which lays down that payment to the builder in instalments is sufficient compliance for claiming exemption u/s 54F.
The assessee also contended that Section 54F is a beneficial provision and the assessee very honestly and sincerely and desiring to avail the benefits conferred by the said section had acquired a new house and has paid the amount as per the agreement to sell with the builder. Merely because the sale deed had not been executed or that construction is not complete and it is not in a fit condition to be occupied does not disentitle the assessee to claim section 54F relief. The assessee relied upon on various citation to support her contentions.
The Tribunal observed that the only disputes was that the assessee had given the cheque for the balance amount upon which the AO was of the view that the details of the cheque and its dates were not mentioned in the certificate of the builder and in the agreement to sell submitted by the assessee. Also there was no dispute about the consideration to be paid by the assessee.
The Tribunal opined that merely the cheque details not mentioned in the agreement or in the certificate of the builder will not change the ultimate purpose of making the investment by the assessee and the assessee had placed on record the relevant evidence that the payment had been made and there was a requirement to make the payment in installments.
The bench noted that the intention of the Legislature was to encourage investments in the acquisition of a residential house and completion of construction or occupation is not the requirement of law. The words used in the section are ‘purchased’ or ‘constructed’.
The Tribunal observed that in the instant case, there was no doubt that the assessee had fulfilled the condition precedent for claiming benefit under section 54F is that the capital gain should be parted by the assessee and invested either in purchasing a residential house or in constructing a residential house. Merely because the sale deed had not been executed or that construction is not complete, and it was not such a watertight condition to be fulfilled and does not disentitle the assessee to claim section 54F relief.
The Tribunal in the light of the CBDT circular no. 471 dated 15.10.1986 and circular no. 672 dated 06.10.1993 and the various judicial precedents cited by the assessee opined that conspectus of the facts suggested that the assessee was entitled for deduction u/s. 54F of the Act as claimed, merely the postdated cheque was not cleared or the details thereof for an amount not mentioned in the agreement will not disentitle the assessee to claim the investment amount.
Accordingly the appeal of the assessee was allowed.
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