Sher Singh Vs ITO (ITAT Chandigarh)
In the case of Sher Singh vs. ITO, the Income Tax Appellate Tribunal (ITAT) Chandigarh ruled in favor of the assessee, granting the full deduction under Section 54F of the Income Tax Act, 1961 for a residential house constructed using the sale proceeds of agricultural land. The Assessing Officer (A.O.) had originally disallowed the full deduction and estimated the construction cost at Rs. 25 lakhs, based on a report from an Income Tax Inspector. The Assessee had submitted a report from an approved valuer, indicating that the actual cost of construction was Rs. 55,82,750. The A.O. had computed the Long-Term Capital Gains (LTCG) at Rs. 21,08,371, allowing only partial deduction for the construction cost.
On appeal, the Commissioner of Income Tax (CIT) upheld the A.O.’s decision, stating that the land on which the house was constructed was owned by the assessee’s mother, Jabra Devi, and not the assessee directly. However, the ITAT disagreed with this reasoning, emphasizing that there was no dispute regarding the fact that the assessee had constructed the house and was residing in it, along with his mother. The ITAT ruled that the ownership of the land by the mother should not disqualify the claim under Section 54F, as the construction and residence were legitimate. Furthermore, the Tribunal found that the A.O.’s reliance on the inspector’s report to estimate the construction cost was misplaced, as the inspector was not a qualified expert in valuation. Instead, the ITAT gave credence to the approved valuer’s report, directing the cost of construction to be taken as Rs. 55,82,750. As a result, the ITAT ordered the deletion of the capital gain addition made by the A.O. and granted the full deduction under Section 54F.
