Kaziyur Narayanan Godha Vs ITO (ITAT Bangalore)
The Income Tax Appellate Tribunal (ITAT), Bangalore allowed the assessee’s appeal and directed the Assessing Officer to grant deduction under Section 54F of the Income-tax Act in respect of long-term capital gains invested in construction and structural improvements to an existing residential property. The dispute arose after the assessee sold a vacant site during AY 2022-23, computed long-term capital gains of ₹25,24,251 and claimed exemption under Section 54F on the ground that the amount had been reinvested in construction and improvement of a residential house purchased earlier. The Assessing Officer rejected the claim, holding that the residential property had been purchased before the sale of the original asset and that the expenditure represented only renovation, which did not qualify as purchase or construction of a new residential house. The CIT(A) affirmed the disallowance, also observing that the assessee had already claimed deduction under Section 54F in an earlier assessment year in respect of the same property.
Before the Tribunal, the assessee submitted that the expenditure was incurred on structural additions and construction activities, including an additional room, pooja room, compound wall, underground sump, borewell and other civil works, to make the old residential property habitable. The assessee also relied on an engineer’s certificate and other supporting documents to establish the nature of the work and utilisation of the capital gains.
