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July 22, 2022

Reinvestment in twin residential units is applicable for deduction u/s 54F

by CA Shivam Jaiswal in Income Tax, Legal Court Judgement

Reinvestment in twin residential units is applicable for deduction u/s 54F

Facts and Issues of the case

The assessee had derived his corresponding long term capital gains from sale/transfer of equity shares held in M/s. Emcure Pharmaceuticals Pvt. Ltd. and UTH Beverage Factory Pvt. Ltd.; as the case may be. His total long term capital gains came to be Rs.10,86,37,509/-. There is further no issue that this assessee inter alia purchased flat nos.3123 and 3124 in residential project “Clover Palisades” on 23rd June and 23rd July, 2014 from M/s Raj K. Bhansali (HUF) for Rs.2.60 crores and Rs.2.40 crores; followed by stamp duty and registration charges of Rs.15,90,100/- and Rs.14,70,100/-; respectively, coming to Rs.2,75,90,100/- and Rs.25,47,100/-, aggregating to Rs.53,06,200/-. He also claimed cost of alteration/modification of Rs.1,91,37,784/- and investment in capital gains account scheme of Rs.1 crore; respectively. He therefore raised an aggregate section 54F deduction claim amounting to Rs.8,21,97,984/-. Suffice to say, the Assessing Officer accepted disallow the same in his section 143(3) regular assessment dated 14.12.2017 thereby not making any addition in returned income amounting to Rs.7,76,60,770/-. This leaves the assessee aggrieved.

Observations by the Court

The first and foremost issue that arises for our apt adjudication is regarding the allowability of assessee’s section 54F deduction claim regarding reinvestment of his long term capital gains in the foregoing twin residential units.

The court had find no merit in the Revenue’s foregoing arguments qua allowability of assessee’s section 54F deduction. We wish to repeat here that he had very well purchased the twin residential units in the year 2014 (supra) itself whereas the clinching amendment to section 54F(1) is applicable with prospective effect from 1.4.2015 only. The court holds that the learned PCIT has erred in treating the assessee’s reinvestment of capital gains in purchase of these two flats totalling to Rs.5,30,60,200/- as wrongly allowed u/s 54F in the Assessing Officer’s regular assessment (supra). The assessee succeeds in his first and foremost grievance in very terms therefore.

The factual position is just the opposite in assessee’s stand so far as correctness of learned PCIT’s directions regarding the latter facet(s) of renovation/modification in the foregoing twin residential units of Rs.1,10,05,154/- and Rs.1 crore deposited in capital gains scheme (supra) is concerned as this taxpayer has failed to prove that the Assessing Officer had carried out detailed enquiries during the regular assessment in issue in light of section 263 Explanation 2 as amended by the Finance Act, 2015 w.e.f. 1.6.2015. We make it clear that although the assessee has placed strong reliance on his explanation filed before the Assessing Officer, we do not find any specific and detailed enquiry carried out at the latter end during scrutiny. We thus quote the foregoing case law (supra) that lack of enquiry itself invites application of section 263 revision jurisdiction and conclude that the learned PCIT’s impugned directions qua this aspect deserve to be sustained. It is made clear that the assessee shall be afforded adequate opportunity of hearing to prove his impugned section 54F deduction claim in consequential proceedings.


The appeal of the assessee is partly allowed by the court.


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