2010 (12) TMI 217 - AT - Income Tax

Capital gain - exemption u/s 54 - new residential house - Disallowance of Rs. 95 lakhs claimed u/s 54 of the Act - AO disallowed the claim on the ground that (a) the return of income was not accompanied by the proof of deposit of Rs.95 lakhs made in State Bank ofIndia in Capital Gains Scheme (b) The property i.e., Trombay House, in respect of which the exemption was claimed, was not a residential house (c) The return of income was not filed u/s 139(1) but was filed u/s 139(4). - Held that - the requirement of attaching the proof of having deposited the amounts in the specified capital gain account, with the return of income, is directory and as the assessee has furnished all the details during the course of assessment, no disallowance u/s 54 can be made on this count. Regarding nature of property - Factually for the assessment year 1997-98 Mr. Coelhi Peter Gasper has declared Rs.14,818 as income from house property in the return of income. In the last WILL and testament, the Trombay House is referred to as a residential property of ground and two upper floors at para 16 of the WILL. The vouchers of Bharat Petroleum Corporation describes the payment as made towards a residential premises. The Municipal Corporation of Grater Bombay levied municipal taxes on the ground that this is a residential property. The Secretary, Housing and Special Assistance Department, Govt. of Maharashtra, Mantralaya, Bombay has also considered it as residential property - All the above evidences clearly demonstrate that this is a residential property. - Decided in favor of assessee - AO directed to allow the deduction u/s 54. Section 54(2) requires that in case the capital gain is not appropriated by the assessee for purchase for a new asset or for constructing of the new asset before the date of furnishing the return of income u/s 139, he should deposit the same not later than the due date prescribed for filing a return of income u/s 139(1) in a specified bank account - The return shall be accompanied by proof of such deposit - The assessee produced the proof during the course of assessment proceedings and in such circumstances, in our humble opinion, the claim should be allowed - In the last WILL and testament, the Trombay House is referred to as a residential property of ground and two upper floors at para 16 of the WILL- Appeal is allowed

Issues Involved:

1. Disallowance of Rs. 95 lakhs claimed under Section 54 of the I.T. Act.
2. Addition of Rs. 8,05,787 by considering the incorrect date of property acquisition.

Detailed Analysis:

1. Disallowance of Rs. 95 lakhs claimed under Section 54 of the I.T. Act:

The assessee, an individual deriving income from various sources, filed her return of income for the year ending 31-3-2006, declaring a total income of Rs. 43,82,090. She claimed exemption under Section 54 of the I.T. Act on the sale of house property in Bombay. The AO disallowed this claim on three grounds:

(a) The return of income was not accompanied by proof of deposit of Rs. 95 lakhs in the State Bank of India under the Capital Gains Scheme.
(b) The property, Trombay House, was not a residential house.
(c) The return of income was not filed under Section 139(1) but under Section 139(4).

Analysis:

- Filing of Return and Proof of Deposit: The assessee argued that Section 54(2) only requires the amount to be deposited in a specified account before the due date of filing the return under Section 139(1). The return itself need not be filed within this time. The Tribunal agreed, stating that the requirement is to deposit the money before the due date, not necessarily to file the return within that period. The Tribunal found that the assessee met this condition as the deposit was made by the due date. Hence, the basis of rejection on these grounds was incorrect.

- Attachment of Proof of Deposit: The Tribunal considered the requirement of attaching proof of deposit with the return as directory, not mandatory. The assessee provided the proof during the assessment proceedings, which should suffice. The Tribunal cited several case laws to support this view, including CIT v. Shivanand Electronics and CIT v. Hemsons Sons, concluding that the claim should be allowed since the proof was provided before the assessment was completed.

- Nature of Property: The property was acquired by the assessee as a gift and was used as a residential property. The Tribunal reviewed various documents, including valuation reports, municipal tax records, and historical usage by Bharat Petroleum Corporation Ltd., which confirmed the property's residential nature. The Tribunal concluded that the property was indeed residential, and thus the exemption under Section 54 should not be denied on this basis.

2. Addition of Rs. 8,05,787 by considering the incorrect date of property acquisition:

The AO added Rs. 8,05,787 to the assessee's income, claiming that the date of acquisition of the flat was 4th Oct., 2002, not 6th Nov., 2000. The assessee argued that the property was registered on 6th Nov., 2000, and a certified copy was obtained on 4th Oct., 2002, causing the confusion.

Analysis:

- The Tribunal found merit in the assessee's argument, noting that the registration date was indeed 6th Nov., 2000, and the confusion arose from the date of obtaining the certified copy. Both parties agreed to remit the matter to the AO for verification. Therefore, the Tribunal directed the AO to verify the actual date of registration and make the necessary corrections.

Conclusion:

The Tribunal allowed the appeal in part, granting the exemption under Section 54 and remitting the issue of the property acquisition date back to the AO for verification. The order was pronounced in the open court on 3rd December, 2010.

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