Case Law Details
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.
FULL TEXT OF THE ORDER OF ITAT CHANDIGARH
The present appeal has been preferred by the assessee against the order dated 29.08.2023 passed by the Ld. Commissioner of Income Tax, National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as ‘CIT(A)’], for the Assessment Year 2008-09.
2. The Assessee in this appeal is aggrieved by the action of the CIT(A) in confirming the additon made by the Assessing Officer (A.O.) of Rs. 46,08,371/- on account of capital gains from sale of agricultural land.
3. At the outset, the ld. Counsel for the Assessee has submitted that the A.O. while making the impugned additon has wrongly and illegally denied the claim of deduction u/s 54F of the Income Tax Act, 1961 (in short ‘the Act’). She in this respect, has submitted that the Assessee had constructed a residential house and spent Rs. 55,82,750/-. A valuation report from the approved valuer in this respect was also submitted before the Assessing Officer. However, the Assessing Officer deputed the Income Tax Inspector, who estimated the cost of construction at Rs. 25 lacs. The A.O., therefore, allowed deduction u/s 54F of the Act to the extent of Rs. 25 lacs and computed the Long Term Capital Gains at Rs. 21,08,371/-.
4. In appeal, the ld. CIT(A) rejected the claim of the Assessee u/s 54F of the Act, observing that the Assessee had construed the house on the land which was owned by his mother Jabra Devi. He, therefore, enhanced the income of the Assessee at Rs. 46,08,371/-.
5. I have heard the rival contentions and gone thought the record. In the case in hand, there is no dispute about the fact that the Assessee had constructed a house out of sale proceeds of the agricultural land. The said fact has already bene verified by the Assessing Officer by sending Inspector at the house of the Assessee. There is also no plea that the Assessee is not residing in the said house or that the said house has not been constructed by the Assessee. It is also not the case of the Revenue that the Assessee is not residing with his mother. Merely because the plot of land on which the house has been constructed still stands in the name of the mother of the Assessee that, in my view, cannot be a ground to reject the calm of the Assessee u/s 54F of the Act, when, it has otherwise been proved on the file that the house has been constructed by the Assessee and the Assessee is residing in the said house along with his mother.
6. So far as the quantum of deduction is concerned, the Assessee has furnished the valuation report from the approved valuer regarding the cost of construction. The Income Tax Inspector is not a qualified or technical person to assess the cost of construction. Moreover, the cost of construciton cannot be assessed by just vising the house without comparing the item wise details with the market price. It is a technical work which could have been got done by the Assessing Officer from Government valuer. However, no such exercise has been got done by the A.O. Under the circumstances, the report submitted by the approved valuer, who is a technically qualified person in the said field, is to be given credence. In view of this, it is held that the A.O. is not justified in estimating the cost of construction at Rs. 25 lacs at the report of the Inspector. Therefore, the cost of construction is directed to be taken as per the approved valuer’s report at Rs. 55,82,750/-. Under the circumstances, after giving deduction u/s 54F of the Act to that extent, there will be no net capital gains. Accordingly, the additon made by the A.O. is ordered to be deleted.
7. In the result, the appeal of the Assessee stands allowed.
Order pronounced on 03.12.2024.
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