No Completion Certificate Needed for 54F: ITAT Allows Capital Gains Exemption

The assessee, an individual, sold shares of M/s. FCM Travel Solutions (India) Ltd. to M/s. Flight Centre Mauritius for a total consideration of Rs. 53,14,40,275. Out of the resulting long-term capital gains, the assessee claimed a deduction under Section 54F of the Income-tax Act, 1961, amounting to Rs. 48,26,66,960.

During assessment, the Assessing Officer disallowed the Section 54F claim on the ground that the assessee failed to furnish a completion certificate or fitness certificate from the local municipal authorities and allegedly did not substantiate construction expenses to the satisfaction of the department. The Assessing Officer also disallowed a sum of Rs. 1,75,32,143 paid towards legal and professional fees to Luthra & Luthra, treating it as not allowable expenditure. The Commissioner of Income Tax (Appeals) allowed the assessee’s claim, leading to the Revenue filing appeals before the Tribunal.

Issue Before Tribunal: Whether deduction under Section 54F can be denied solely for want of a completion certificate or fitness certificate when the assessee has otherwise proved investment in construction of a residential house within the statutory time limit, and whether legal expenses incurred for transfer of shares are deductible under Section 48(i) of the Act.

ITAT’s Decision: The Hon’ble Income Tax Appellate Tribunal held that the Income-tax Act does not mandate production of a completion certificate or fitness certificate from civil or municipal authorities as a condition precedent for claiming deduction under Section 54F.

The Tribunal noted that the assessee had taken possession of the plot in April 2010, commenced construction thereafter, and made the last construction payment in March 2011. Documentary evidence clearly established the completion and occupation of the house within the prescribed time. The Tribunal therefore upheld the finding of the CIT(A), allowing deduction under Section 54F.

The Tribunal further held that the legal and professional fees paid to Luthra & Luthra were incurred wholly and exclusively in connection with the transfer of shares and were allowable as a deduction under Section 48(i) while computing capital gains. Thus, the Tribunal dismissed the Revenue’s appeals.

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