Section 54F Exemption Can’t Be Denied for mere Lack of Bills & Vouchers

ITAT Raipur held in the case of Satish Agarwal vs. ITO that Exemption under section 54F of Oncome Tax Act, 1961 cannot be denied merely for the reason that bills and vouchers were not produced.

1. Section 54F is an essential provision of the Income Tax Act that allows taxpayers to claim exemption on long-term capital gains arising from the sale of any long-term capital asset, provided the sale proceeds is invested in the purchase of residential property either 1 year before or 2 years after the sale of an asset or constructed within 3 years of the sale of the old asset

1.1. It may happen that an individual has invested the sale proceeds in the construction of the property but does not have bills and vouchers of expenditure incurred towards the construction of the house.

1.2. This article discussed the case law where it was held by Income Tax Appellate Tribunal (ITAT) Raipur that exemption under section 54F could not be denied simply because bills and vouchers were not produced by the assessee: – Satish Agarwal v. ITO (ITAT Raipur), ITA No. 37/RPR/2024, Dated: 21st May 2024. 

2. Brief fact of the Case: The AO during the assessment, observed that the assesse received a consideration of Rs. 1,08,00,000/- from the sale of Land on 07.03.2014. However, such a transaction was not reflected in the assessee’s return of income. The assessee was confronted by the AO to explain why capital gain had not been offered for said transaction.

2.1 In response, it is stated that the capital gain was reinvested in the house property, so the same is eligible and accordingly, has been claimed as exemption u/s 54F of the Act. Therefore, there was no capital gain to be declared in the return of income.

2.2 To investigate further, AO requested the assessee to furnish details of the sales transaction and exemption claimed u/s 54F. In compliance with the same , the following calculation submitted by the assessee:

2.3  The AO further requested the assessee to furnish documentary proof to support his claim of deduction under section 54F. Several opportunities were granted to the assessee by the AO, but the assessee failed to produce evidence for the investment in the house property.

2.4 Since the assessee has no documentary proof of investment in house property, the AO rejected the claim of the assessee u/s 54F of the Act, vide Order dated 30.06.2016, considering that he is not entitled to such claim.

3. The assessee filed the Appeal with CIT. Again, before CIT(A), the assessee was unable to furnish any further explanation. The opportunities were granted, and the assessee had sought adjournments on various dates. However, the order was passed considering the following facts on record: –

The appellant has failed  to furnish any vital pieces of evidence, i.e. copy of Bank statements reflecting the transactions made, a copy of the purchase deed, a copy of the Architect Certificate, Site Plan/Construction Plan and municipal/panchayat payment receipts and evidence relating to the cost incurred on construction of the residential house, viz. bills of expenses on material, labor, wood, electric fitting, proof of land cost, demolition cost, etc., as supporting evidence to justify the claim of deduction of Rs. 53,86,107.

3.1 The order was passed on 07.12.2023 u/s 250 of the Income Tax Act, 1961 considering the entire factual matrix of the case.  The addition of Rs. 53,86,107/ made for disallowance of deduction u/s.54F was confirmed and the appeal was dismissed.

4. The assesse filed a second appeal with ITAT Raipur on the ground that the CIT(A) has passed the order ex-parte, without allowing the opportunity to him, though the application for adjournment was filed on 25.10.2023 for adjournment up to 08.12.2023, Order was passed on 07.12.2023.

4.1 The authorized representative of the assessee submitted the additional evidence:-

(a) Copy of sale deed registered on 11.03.2014 for sale of land at Rs. 1,08,00,000/-, stating that the entire consideration was received by the assessee before execution of the said sale deed.

(b) The statement of affairs of the assessee as of 31.03.2014 has an entry of investment in a new house with the said figure on the asset side of the statement of affairs.

(c) An application for admission of additional evidence u/r 29 of the ITAT Rule containing therein a valuation report by the approved valuer dated 01.03.2023 showing the valuation of immovable property i.e., residential building, stating that this is the same property where the assessee had invested Rs. 68,58,9000/- and has claimed the deduction u/s 54F for which the assessee is entitled under the provisions of the Act.

(d) The additional evidence showing a copy of permission by Nagar Palik Nigam, Bilaspur dated 27.01.2023 for construction on the property situated at 748/2 at Juna, Bilaspur i.e., the property for which the valuation was obtained and furnished.

4.2 Further, it was submitted that the additional evidence submitted is of material importance and deciding the issue. Since  the same was not readily available during the assessment proceedings,  the assessee was unable to submit the same before the Assessing Officer.

5. It is held by ITAT RAIPUR BENCH that after carefully going through the aforesaid submissions by both the parties and on a thoughtful consideration of the contentions raised by the Authorized representative of the assessee, it is ostensible that though the assessee had shown the amount of investment in his balance sheet/statement of affairs for the relevant year and following year but was unable to substantiate the same with corroborative evidence. The claim of the assessee that the consideration of Rs. 1,08,00,000/- was received in cash on 07.03.2014 out of which an amount of Rs.68,58,900/- was utilized in the construction of the residential house till 31.03.2014, though was not disputed by the revenue but remain uncorroborated in absence of documentary evidence.

5.1 Under similar facts and circumstances, while deciding the identical issue, the following observations of the coordinate benches of this tribunal are worth noting

5.2 ITAT Pune, Bench B in the case of Govind Gangadhar Sabane v.ITO ( 2019) held that “Where assessee had sold an agricultural land and utilized sale consideration for construction of the new residential house and claimed deduction under section 54F, since both Assessing officer and Commissioner (Appeals) had agreed to fact that inspector had visited site and had reported that new house was constructed, exemption under section 54F could not be denied simply because bills and vouchers were not produced.”

5.3 In the case of Pawan Aggarwal v. DCIT, it was held by ITAT, Chandigarh, Bench ‘B’, [2023] that “Where Assessing Officer disallowed cost of construction while computing LTCG on sale of property for reason that assessee failed to produce bills/voucher of construction activities since admittedly there were withdrawals from assessee’s account for construction of property and assessee had also submitted valuation report in support of his claim of cost of construction which would be germane and relevant to determine the appropriate cost of construction, however, same was not considered. Matter was to be reminded to examine such valuation report and decide matter afresh.”

6. Conclusion: Since such additional evidence is not before the CIT(A), he does not have to decide the issue, considering the information emanating from such documents. Therefore, in all fairness and the interest of the principle of natural justice, the matter should be restored to the file of CIT(A) for fresh adjudication.

The assessee shall be afforded reasonable opportunities of being heard in the set aside appellate proceedings and liberty to produce necessary evidence/information evidence to substantiate the contentions raised.

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