1998 (8) TMI 610 - AT - Income Tax

Summary

Issues Involved:
1. Enhancement of income under the head "Capital gains" from Rs. 39,399 to Rs. 1,27,568.
2. Scope of prima facie adjustments under section 143(1)(a).
3. Compliance with section 54F of the IT Act, 1961.
4. Validity of the deposit in a savings bank account versus the Capital Gains Account Scheme, 1988.
5. Justification for enhancement by CIT(A).
6. Proof of utilization of sale proceeds for the purchase or construction of a new residential house.

Issue-wise Detailed Analysis:

1. Enhancement of Income under the Head "Capital Gains":
The primary issue was the enhancement of the assessee's income under the head "Capital gains" from Rs. 39,399 to Rs. 1,27,568 by the CIT(A). The CIT(A) held that the entire amount of Rs. 1,84,284, being the difference between the investment and the sale price of Rs. 2,03,000, should have been deposited as per section 54F(4). Since this was not complied with, the entire amount was taxed.

2. Scope of Prima Facie Adjustments under Section 143(1)(a):
The assessee contended that the adjustments made by the Assessing Officer (AO) were beyond the scope of section 143(1)(a). The AO made prima facie adjustments based on the information provided, which the CIT(A) upheld. However, the assessee argued that the adjustments were not justified as the amount was used for constructing a new house.

3. Compliance with Section 54F of the IT Act, 1961:
The assessee claimed exemption under section 54F, asserting that the capital gains were invested in constructing a new house. The CIT(A) found that the amount was deposited in an ordinary savings account, not as per section 54F(4), which mandates depositing the amount in a specified account if not immediately utilized for purchasing or constructing a new house.

4. Validity of the Deposit in a Savings Bank Account versus the Capital Gains Account Scheme, 1988:
The CIT(A) noted that the deposit was in a savings bank account, not as required under the Capital Gains Account Scheme, 1988. The assessee argued that the amount was eventually used for constructing a house, and hence, the deposit in a savings account should suffice.

5. Justification for Enhancement by CIT(A):
The CIT(A) justified the enhancement by stating that the entire sale proceeds should have been deposited in a specified account as per section 54F(4). The assessee's claim of using the amount for constructing a house was not substantiated by appropriate deposit evidence as required by the section.

6. Proof of Utilization of Sale Proceeds for the Purchase or Construction of a New Residential House:
The assessee contended that the amount was used for constructing a new house, thus qualifying for exemption under section 54F. However, there was no evidence that the exact sale proceeds were used for this purpose. The Tribunal noted that the section requires appropriation of the sale proceeds towards the purchase of a new asset within stipulated timeframes.

Conclusion:
The Tribunal remanded the matter back to the AO for fresh consideration, allowing the assessee to provide evidence that the sale proceeds were appropriated towards acquiring the new asset. The appeal was allowed for statistical purposes, and the related appeal under section 154 was dismissed as infructuous.