2012 (3) TMI 190 - AT - Income Tax

LTCG - exemption u/s 54 - the property was inherited the assessee took the cost of acquisition as fair market value of the asset as on 1.4.1981 and claimed benefit of indexation from Year 1981 - AO reworked the cost of acquisition by applying cost indexation from the year 1994 when the property was actually passed to him - assessee invested the sale consideration in his new residential house - AO stated that the sale consideration had not been deposited in capital gain account scheme before the due date specified for filing of return of income which was 31st July 2008 - the assessee contented when a capital asset is acquired by an assessee by gift inheritance partition of an HUF or other specified mode the cost of acquisition of the asset shall be deemed to be the cost for which the previous owner acquired. Held that - the assessee became owner of the property on the death of his wife who acquired property from her mother - Under sec. 49(1) where the capital asset becomes the property of the assessee under the modes specified therein the cost of acquisition of the asset shall be deemed to be the cost for which the previous owner of the property acquired it - cost of indexation has to be with effect from 1.4.1981 the date on which the cost of acquisition was taken in the hands of the previous owner - the assessee could have furnished the return of income under sec. 139(4) for any previous year at any time before the expiry of one year from the end of the relevant assessment year. The requirement of sec. 54 for exemption of capital gains could be fulfilled within the time limit of sec. 139(4) and not under sec. 139(1) - assessee was entitled to exemption under sec. 54 for investment of capital gains in new residential house.

Summary

Issues:
Deletion of addition of long term capital gain and disallowance of assumption of claim under section 54 of IT Act 1961.

Deletion of Addition of Long Term Capital Gain:
The appeal concerned the deletion of an addition of Rs. 8,18,317 made by the Assessing Officer on account of long term capital gain. The assessee sold a property inherited from his wife and claimed index cost of acquisition based on fair market value as of 1.4.1981. The AO, however, calculated the indexed cost from 1994, resulting in a higher long term capital gain. The CIT(A) ruled in favor of the assessee, emphasizing that indexation should consider the period the asset was held by the previous owner. The Tribunal upheld the CIT(A)'s decision, citing relevant legal provisions and precedents.

Disallowance of Claim under Section 54:
The second issue revolved around the AO disallowing the claim under section 54 due to the sale consideration not being deposited in the capital gain account scheme by the due date. The CIT(A) allowed the claim, stating that the investment in the new property was made within the extended time limit under section 139(4). The Tribunal supported this decision, referencing judgments by the Guwahati High Court and Punjab & Haryana High Court. It concluded that the assessee was entitled to exemption under section 54 as the investment was made within the prescribed time frame. The appeal by the revenue was dismissed based on these findings.