2012 (6) TMI 408 - AT - Income Tax

Deduction u/s 54f AO contested to withdrawn LTCG claim allowed as exemption in the A/Y 2006 and to reduce the amount of Rs 25 Lakhs being a capital loss on the sale of house property from the exemption claimed on LTCG u/s 54F - Held that - As the AO was justified in treating Rs. 73,94,157/- as long term capital gains of the year under consideration the assessee has invested in purchase of new residential house at Rs. 70,80,620/- within the period of two years in which the transfer took place, thus the assessee was eligible for deduction u/s 54F(1) in respect of the said investment - as the capital gains of the assessee was Rs. 48,94,157/- only whereas the assessee was eligible for exemption of more than that amount u/s 54F for investment of Rs. 70,80,620/- in purchase of residential house, CIT(A) was justified in deleting the addition of Rs. 48,94,157 against revenue. Unexplained investment - appeal by revenue that CIT(A) deleted the addition of Rs. 25 lakhs - AO s treated the source of investment in property at Chetpet to the tune of Rs. 50 lakhs only as per the sale proceeds of Alwarpet property as shown in registered sale deed, treating Rs. 25 lakhs as unexplained investment - Held that - The assessee has brought no material on record to show that it actually received any amount more than the amounts shown in the registered deed of sale - the assessee has invested Rs. 70,80,620 in the house property at Chennai and out of which source to the extent of Rs. 50 lakhs stands explained from the sale of property at Alwarpet and Rs. 6 lakhs stands explained from the sale of Velacherry land, thus the assessee was not able to explain the source of investment of balance amount of Rs. 14,80,620 only need to be added to the income of the assessee as un explained income modify the order of the CIT(A) and restore back the addition to the extent of Rs. 14,80,620 - in favour of revenue.

Summary

Issues Involved:
1. Deduction under Section 54 of the Income Tax Act.
2. Addition of Rs. 25 lakhs as unexplained investment.

Issue-wise Detailed Analysis:

1. Deduction under Section 54 of the Income Tax Act:

The primary issue in this appeal was whether the CIT(A) erred in allowing a deduction under Section 54 to the extent of Rs. 48,94,157/-. The facts are that the assessee sold a long-term capital asset (land at Velacherry) and invested the proceeds in purchasing a house at Alwarpet, claiming an exemption under Section 54F. Later, the Alwarpet property was sold, and another house was purchased at Spur Tank Road, Chetpet. The Assessing Officer (AO) opined that the long-term capital gains exemption should be withdrawn since the Alwarpet property was sold within three years, and he calculated a taxable amount of Rs. 48,94,157/- after considering a capital loss.

Upon appeal, the CIT(A) deleted the addition, reasoning that the sale of the Alwarpet property did not involve the appellant directly, as it was held by an irrevocable Power of Attorney (POA). The CIT(A) also noted that the appellant's decision to sell the Alwarpet property was due to 'Vaastu defects,' which are personal beliefs and should not be interfered with. The CIT(A) concluded that the investment in the new property at Spur Tank Road, Chetpet, should be considered for exemption under Section 54F.

The Tribunal agreed with the CIT(A), noting that the assessee had invested in a new residential house within the stipulated period and was eligible for the deduction. The Tribunal confirmed the CIT(A)'s order, dismissing the Revenue's appeal on this ground.

2. Addition of Rs. 25 lakhs as unexplained investment:

The second issue involved the addition of Rs. 25 lakhs as unexplained investment. The AO observed that the sale deed for the Alwarpet property showed a consideration of Rs. 50 lakhs, whereas the assessee claimed it was sold for Rs. 75 lakhs. The AO treated the difference as unexplained investment.

The CIT(A) deleted the addition, reasoning that the AO had accepted the investment in the Alwarpet property at Rs. 75 lakhs for exemption purposes and should not have treated the sale value differently.

The Tribunal found that the sale value as per the registered deed was Rs. 50 lakhs, and the assessee failed to provide evidence of receiving more than this amount. The Tribunal held that the apparent value in the registered sale deed should be assumed correct unless proven otherwise. Consequently, the Tribunal modified the CIT(A)'s order, restoring the addition to the extent of Rs. 14,80,620/- (the unexplained portion of the investment).

Conclusion:

The Tribunal partly allowed the Revenue's appeal, confirming the CIT(A)'s decision on the deduction under Section 54 but modifying the decision regarding the unexplained investment, restoring an addition of Rs. 14,80,620/-.