The Reader

One of my clients to avail exemption u/s 54F of the I. Tax Act on long term capital gain decided to purchase a new residential house. But, since the new house could not be purchased before the due date of filing return of income, he deposited the total amount of net sale consideration of Rs. 25 lacs in the Capital Gains Accounts Scheme, 1988 as per sub section (4) of Section 54F.

Thereafter, within the prescribed time limit he purchased the new house costing Rs. 25 lacs. He withdraws the above deposit of Rs. 25 lacs and bank credited the amount in his savings bank account. He also took a housing loan of Rs. 20 lacs for purchase of the said new house. This loan amount was also credited by the bank in his savings bank account. Out of the total amount of Rs. 45 lacs, he paid the cost of new house amounting to Rs. 25 lacs and balance of Rs. 20 lacs was utilized for some other purposes.

Thereafter in every year he is claiming deduction u/s 80C for housing loan repayment and also interest on housing loan under income from house property.

Now the ITO wants to tax the capital gain u/s 45 of the Act and also after reopen the case wants to disallow the claim u/s 80C and interest claim of housing loan from income from house property. Is his action correct under the Law? Kindly advice with case laws, if any.

REGARDS.