ITAT allows Sec 54F Relief for Additional Floors of New House [Read Order]

The Income Tax Appellate Tribunal (ITAT), Bangalore has held that the deduction from capital gain under section 54F of the Income Tax Act is allowable on the cost of construction of the additional floors in the newly purchased residential house.

The assessee sold an industrial unit and invested the sale consideration for the purchase of the new residential house and for the construction of 2nd and 3rd floor on the same property because property purchased by the assessee was consisting of the ground floor and the first floor only.

Though the Assessing Officer accepted his claim for deduction under section 54F in respect of the purchase of property, he disallowed the deduction for construction of additional floors by holding that the provision does not allow the same.

On the first appeal, the CIT(A) upheld the order of the Assessing Officer and held that the additional 2nd and 3rd floors constitute separate residences.

Being failed to secure relief from the first appellate authority, the assessee approached the Tribunal.

The Tribunal found that it is observed by CIT(A) in this para that as per the provisions of section 54F, either the new asset is purchased or constructed within the time limit specified.

“Hence it is seen that as per this observation of CIT(A) in this para, as per him, cost of purchase and cost of construction of additional floors both cannot be considered for the purpose of allowing deduction u/s. 54F of IT Act. This objection of CIT(A) is not valid in the light of this judgment of Hon’ble Calcutta High Court. Regarding the delay in starting of the construction of 2nd and 3rd floors, it is seen that such delay is explained by giving proper reasons by saying that the assessee was having a health problem of himself and apart from that, both of his daughters as noted above had some problems. There is one more objection of CIT(A) that if this is allowed then the purchase cost of the new asset can be indefinitely increased through extension/additions to the new asset. In this regard, I would like to observe that the addition to the new asset can only be made during the prescribed period and not after that and this is not the case of the department that the claim of the assessee is for an extension outside the permitted time limit. In view of this discussion, it comes out that none of the objections of CIT(A) is valid and hence, by respectfully following the judgment of Hon’ble Calcutta High Court, I hold that the claim of the assessee for deduction u/s. 54F in respect of the amount incurred by the assessee for construction of 2nd and 3rd floors should also be allowed,” the Tribunal said.