1. This appeal has been filed by the assessee against the order of the CIT(A) on the following grounds:

"1. In the facts and circumstances of the case and in law, the learned CIT(A) has erred in denying the deduction of Rs. 63,00,552.00 u/s 54F of the Act to the appellant from long term capital gains on transfer of land by the appellant to M/s. Magarpatta Township Development and Construction Ltd. The aforesaid deduction may please be granted to the appellant.

2. The learned CIT(A) has erred both on facts and in law in holding that the learned Assessing Officer has correctly and rightly worked out the long term capital gains on sale of land by the appellant to M/s. Magarpatta Township Development and Construction Ltd., at Rs. 77,24,527. The aforesaid decision of the learned CIT(A) being patently illegal, bad in law, arbitrary and devoid of merits the same may please be vacated and it may please be held that the long term capital gains on sale of land by the appellant to M/s. Magarpatta Township Development & Construction Ltd., work out to Rs. 14,23,976 after allowing the deduction of Rs. 63,00,552 under section 54F of the Act as claimed by the appellant."

2. The brief facts of the case are that for the year under consideration, the assessee derived income from capital gain on transfer of ancestral agricultural land on 31-3-2005 to Magarpatta Township Construction and Development Co. (hereinafter referred to as "MTCDC"). The assessee claimed deduction under section 54F of the Act amounting to Rs. 63,00,552 from the capital gains on the ground that the assessee has invested the sale proceeds in a residential house. The computation of net capital gains of Rs. 14,23,975 offered to tax after considering the deduction under section 54F of the Act is given on page 2 of the CIT(A)'s order which is reproduced as under:

"The income from capital gain was out of sale of ancestral property situated at Hadapsar Pune which was sold to Builder i.e. Magarpatta Township Construction & Development Co. Ltd. As on 31st March, 2005. the taxable long term capital gain of Rs. 14,23,975 are worked out as under:

3. In fact, the assessee transferred his ancestral agricultural land to MTCDC on 31-3-2005 and consideration was adjusted by the company against the bungalow and plots which were booked by the assessee as per the receipts annexed at pages 23 and 24 of the paper book certified to have been filed before the authorities below. Out of the above purchase consideration, a sum of Rs. 7,50,000 was towards cost of bungalow and Rs. 69,34,700 was towards cost of plot Nos. 37 to 43 totalling to Rs. 76,84,700. Thus, consideration receivable by the assessee on transfer of land was claimed to be adjusted against the above residential bungalow which was booked on the same date and in fact the assessee did not receive consideration at the relevant point of time. The assessee received possession of the newly constructed bungalow on 31-3-2008 as per possession letter dated 31-3-2008 annexed at page 28 of the paper book.

4. The Assessing Officer as well as CIT(A) have denied the deduction under section 54F of the Act in respect of the above investment in the construction of new bungalow on the ground that the bungalow plan was sanctioned on 6-1-2007. The assessee purchased plot Nos. 37 to 43 totalling the area of 17,336 sq.ft. while the bungalow is on plot No. 37 only and the area of the bungalow is about 4000 sq.ft. Thirdly, when the construction was not started prior to the due date of filing of the return under section 13(1) of the Act for assessment year 2005-06 (i.e., 31-7-2005), the assessee should have deposited the consideration received on transfer of the land in the capital gains account with the bank which has not been done.

5. The stand of the assessee is that the consideration receivable for the sale of the land to the MTCDC was appropriated against. The cost of new house on the date itself as per receipts annexed on pages 23 and 24 as discussed in preceding paragraph. Secondly, section 54F of the Act only specifies that the assessee should construct a residential house within a period of 3 years and that condition is also fulfilled as the assessee received the possession of the new house on 31-3-2008 i.e. within three years from the date of transfer i.e. 31-3-2005. Thirdly, section 54F of the Act only states that the capital gains should be invested in a new house. The assessee wanted to construct a spacious house with a garden and therefore, he has purchased the total plot of 17,336 sq.ft. and the bungalow area is about 4000 sq.ft. It was unjustified to hold that the other plots do not qualify for the deduction under section 54F of the Act. The CIT(A) failed to appreciate that all these plot Nos. 37 to 43 are adjacent to each other and combined together and practically one residential unit for the assessee irrespective of different numbers. Thus, the new residential unit consisted of all these plots and the bungalow. There is no restriction provided in section 54F of the Act about the size of the new residential unit or the area of the new residential unit. Hence, the Assessing Officer and the CIT(A) were not justified in denying the relief under section 54F of the Act. It is also noted that the Assessing Officer and the CIT(A) held that the commencement of the construction started much after the end of the year. In this regard the stand of the assessee that the provisions only states that the assessee should utilize the consideration on sale of assets in buying new residential house and if the amount of such construction (sic) is not appropriated for acquisition of a new house prior to the due date of filing of the return under section 139(1) of the Act, the same should be deposited in capital gain scheme in bank account. In the present case, as clarified earlier the entire purchase price was adjusted against consideration by MTCDC on 31-3-2005 itself and the same was utilized by the assessee and the question of investing in the capital gain scheme in the bank did not arise. In this regard, reliance has been placed on the decision of I.T.A.T. Madras Bench in the case of M.A.C. Khaleeli v. Dy. CIT [1994] 48 ITD 191 , wherein the assessee himself was a builder. He received a consideration on sale of an asset and transferred it to his division of construction activity for buying a new house. The Tribunal in such a situation held that the assessee was entitled to deduction under section 54F of the Act. Similar view has been taken in the case of P.K. Datta v. ITO [2006] 10 SOT 66 (Pune) (URO) wherein substantial payment was made to the builder for purchase of a new house by the assessee and therefore, the Tribunal held that the assessee has paid substantial payment to the builder, the deduction under section 54F was allowable although the property was not yet ready. Thus, the substantial investment irrespective of construction of property was held the basis for allowing deduction under section 54F of the Act. In the present case, the entire purchase price of a new house was adjusted by the MTCDC against the sale consideration and the assessee never received the above said consideration in any manner. In view of this, deduction is allowable to the assessee. Similar view has been claimed to have been taken in the case of CIT v. Mrs. Hilla J.B. Wadia [1995] 216 ITR 376 (Bom.) [LQ/BomHC/1993/227] and also in the case of CIT v. Smt. Brinda Kumari [2002] 253 ITR 343 [LQ/DelHC/2000/1147] /[2001] 114 Taxman 266 (Delhi) wherein it was held that if a substantial payment is made to the builder within the stipulated period as envisaged in the provisions of section 54F of the Act, deduction should be allowed to the assessee even though the construction has not completed and possession is not given to the assessee. In the present case, the possession of the newly constructed bungalow by the MTCDC was given on 31-3-2008 itself as per the possession letter discussed above and placed on page 28 of the paper book and even otherwise the entire purchase price of the newly constructed property was paid by the assessee to MTCDC on 31-3-2005 itself on the date of transfer of agricultural land the assessee has substantial domain over the new residential house and thus the deduction under section 54F of the Act is allowable.

6. On the other hand, the learned DR heavily relied on the decision of the CIT(A). He drew our attention to various relevant portion of the CIT(A)'s order. According to the learned DR, the assessee transferred capital asset in question on 31-3-2005 and the capital gain arising thereon has to be utilized in the construction of residential house within the stipulated period under the provisions of section 54F of the Act. The sale proceeds on transfer of capital asset was retained by the purchaser towards the cost of plot and construction of residential house in respect of which deduction under section 54F of the Act is claimed. The date of commencement for the construction of residential property on the plot in respect of which deduction under section 54F was claimed, was obtained on 6-1-2007 as per commencement certificate issued by the local authority. Further, the sanctioned plan for residential bungalow prepared by Architects namely, Space Designers bears the date 4-12-2007. According to the learned DR the provisions of sub-section (4) of section 54F specifically requires that the amount of net consideration not appropriated towards purchase/construction of residential house be deposited in the specified account before the due date for filing of return under section 139(1) of the Act. In case of the assessee, the date of commencement of construction of residential house is 6-1-2007 and the sanctioned plan bears the date after that and until then the amount of net consideration remained with the builder only. Since the assessee has not started construction before the due date for filing of return under section 139(1) of the Act or not even obtained the sanctioned plan before that date, it cannot be said that the amount deposited with the builder was utilized for the purpose of construction of residential property. Accordingly, the assessee has rightly been denied the deduction.

7. After going through the submissions of both the parties and perusing the material on record, we find the undisputed fact is that the assessee has transferred his ancestral agricultural land on 31-3-2005 to MTCDC and simultaneously the receivable amount was adjusted towards bungalow which included plot Nos. 37 to 43 totalling to 17,336 sq.ft. including bungalow on plot No. 37. The receipts placed at pages 23 and 24 of the paper book clearly indicate that the assessee entered into such an understanding with the company on 31-3-2005 itself. According to the Revenue in case the construction is not started prior to due date for filing of the return i.e. 31-7-2005, the assessee should have deposited the consideration received on transfer of the land in the capital gains account with the bank which has not been done in this case. There is no occasion for depositing the amount in question as it was not received by the assessee at any point of time. Had the assessee received the amount, the provision of depositing in the above said manner would have arisen but in this case the amount receivable from the ancestral agricultural land transferred in question has never been received by the assessee at any point of time and on the date of transfer it has been appropriated towards purchase of a bungalow on plot No. 37 and adjacent vacant plot Nos. 38 to 43. The provisions of section 54F read as under:

"The amount of net consideration which is not appropriated by the assessee towards the purchase of the new asset made within one year before the date on which the transfer of the original asset took place, or which is not utilized by him for the purchase or construction of the new asset before the date of furnishing the return of income under section 139 shall be deposited by him before furnishing such returns (such deposit being made in any case not later than the due date applicable in the case of the assessee for furnishing the return of income under sub-section (1) of section 139) in an account in any such bank of institution as may be specified in, and utilized in accordance with, any scheme in this behalf and such return shall be accompanied by proof of such deposit and, for the purpose of sub-section (1) the amount, if any, already utilized by the assessee for the purchase or construction of the new asset together which the amount so deposited shall be deemed to be the cost of the new asset."

8. Thus, the provisions of sub-section (4) of section 54F of the Act specifically requires that the amount of net consideration not appropriated towards purchase/construction of residential house be deposited in the specified account before the due date for filing of return under section 139(1) of the Act. Though the date of commencement of construction of residential house is 6-1-2007 and the sanction plan also bears the date after that, the stand of the revenue is that commencement of construction was started much after the end of the year. The provision states that assessee should utilize the consideration on sale of asset in buying a new residential house and if part of such consideration is not appropriated for the acquisition of the new house prior to the due date of filing of the return, the same should be deposited in the capital gain scheme in the bank account. In this case, as discussed above, the entire purchase price was adjusted against the consideration by MTCDC on 31-3-2005 itself, the same was utilized by the assessee and the question of investing in the capital gain scheme in the bank did not arise. This view is fortified by the decision of ITAT Madras Bench in the case of M.A.C. Khaleeli (supra) wherein the assessee was a builder himself. He received consideration on sale of asset for transfer and transferred the same to his division activity for buying a new house. In such a situation, the Tribunal held that the assessee was entitled to deduction u/s 54F of the Act. Similar view has been taken by Pune Bench of the Tribunal in the case of P.K. Datta (supra) wherein substantial payment was made to the builder for purchase of new house by the assessee and it was held allowable under the provisions of section 54F of the Act although the property was not ready at that time. In the case before us, the whole amount has been adjusted by the company for new house against the sale consideration. In fact, the assessee never received the above consideration in his hand at any point of time. Similar view has been taken by the Bombay High Court in the case of Mrs. Hilla J.B. Wadia (supra) wherein the Court has gone to the extent that if the substantial payment is made within the stipulated period deduction under section 54F of the Act should be allowed to the assessee even though construction of new house is not completed and the possession is not given. In the case before us, possession of new constructed bungalow has been given by the MTCDC to the assessee on 31-3-2008 as evidenced from the possession letter placed on page 28 of the paper book and even otherwise as the entire purchase price of the new house property was paid by the assessee to MTCDC on 31-3-2005 itself i.e. the date of transfer of the agricultural land in question i.e. capital asset. Thus, the assessee has substantial domain over the new residential house. Thus, deduction under section 54F of the Act is justified. The same should be allowed. The Assessing Officer is directed to allow the deduction as claimed by the assessee.

9. In the result, the appeal of the assessee is allowed.