2016 (10) TMI 1119 - AT - Income Tax

Claim of deduction / exemption u/s. 54 - requirement to invest in a bank account under the capital gain account scheme - Held that - During the year the assessee has made payment of ₹ 1527000/- to the builder namely Ajay Enterprises Pvt. Ltd from whom the new house was purchased. Out of this amount of ₹ 1527000/- the builder has appropriated ₹ 950000/- toward another flat No. C-408 booked by the assessee with the builder. It should not be reason for making disallowance/addition. The fact of the matter is that the assessee has invested a total sum of ₹ 6174683/- in the eligible new house (A-907) upto 04/12/2008 i.e. well within the period specified under section 54 of Income Tax Act, 1961. The assessee being an old man of around 76 years could not keep track of the adjustment made by the builder. However, he made the substantive compliance of section 54 by making the required investment in the new house within the period specified u/s 54 of Income Tax Act, 1961. The requirement to invest in a bank account under the capital gain account scheme is a procedural requirement to ensure that investment is made in a residential house as claimed in the return of income. Merely because of technical breach / non-compliance the benefit due to the assessee by the legislature cannot be denied particularly when there is substantive compliance made. Section 54 is a beneficial section and as held by Hon ble Apex Court in the case of Bajaj Tempo Ltd. vs CIT (1992 (4) TMI 4 - SUPREME Court) the provisions of a beneficial section should be construed liberally. - Decided in favour of assessee.

Summary

Issues Involved:

1. Addition of ?9,01,349 by reducing the claim of deduction/exemption under Section 54 of the Income Tax Act, 1961 for AY 2007-08.
2. Addition of ?14,21,000 as alleged capital gain for AY 2008-09.
3. Ex-parte decision by CIT(A) for AY 2008-09.

Issue-wise Detailed Analysis:

1. Addition of ?9,01,349 by reducing the claim of deduction/exemption under Section 54 of the Income Tax Act, 1961 for AY 2007-08:

The Assessee filed a return declaring a total income of ?4,81,560. The Assessing Officer (AO) noticed that the Assessee claimed a deduction under Section 54 for ?51,27,000, which included ?15,27,000 paid to Ajay Enterprises for booking a flat and ?35,00,000 deposited in the Capital Gain Account Scheme, 1988. The AO found that the Assessee had booked two flats (A-907 and C-408) and paid ?5,77,000 for A-907 and ?9,50,000 for C-408. The AO disallowed the deduction for ?9,50,000 related to C-408, resulting in an addition of ?9,01,349 to the Assessee's income.

The Tribunal noted that the Assessee, a 76-year-old individual, had invested a total of ?61,74,683 in the eligible new house (A-907) within the specified period under Section 54. The Assessee's inability to track the builder's adjustments was considered, and it was held that the substantive compliance with Section 54 was met. The Tribunal emphasized that the cost of the new asset should be equal to or more than the capital gain, and procedural lapses should not deny the benefit of Section 54. Citing various precedents, the Tribunal allowed the Assessee's appeal and deleted the addition of ?9,01,349.

2. Addition of ?14,21,000 as alleged capital gain for AY 2008-09:

The Assessee filed a return declaring a total income of ?4,41,740. The AO reopened the case under Section 147, noticing that the Assessee had claimed exemption under Section 54 for two flats (A-907 and C-408) and had deposited ?35,00,000 in the Capital Gain Account Scheme, 1988. During FY 2007-08, the Assessee paid ?14,21,000 from the capital gain account towards Flat C-408. The AO disallowed the exemption for Flat C-408 and taxed ?14,21,000 as capital gain for AY 2008-09.

The Tribunal noted that since the deduction under Section 54 was allowed for AY 2007-08, the addition for AY 2008-09 was not sustainable. Therefore, the Tribunal deleted the addition of ?14,21,000.

3. Ex-parte decision by CIT(A) for AY 2008-09:

The Assessee claimed that the CIT(A) erred in deciding the appeal ex-parte. However, since the Tribunal allowed the Assessee's appeal on merit for AY 2008-09, this issue became moot.

Conclusion:

The Tribunal allowed both appeals of the Assessee, deleting the additions for AY 2007-08 and AY 2008-09. The Tribunal emphasized substantive compliance with Section 54 and cited various precedents to support its decision. The order was pronounced in the Open Court on 25/10/2016.