2013 (10) TMI 746 - AT - Income Tax

Benefit of exemption u/s 54F of the Income Tax Act - In order to avail the exemption in respect of a sum of Rs. 1,22,23,250/- u/s. 54F(4) of the Act, the assessee on 30.7.2008 issued instruction to the Syndicate Bank, Hauz Khas, New Delhi to transfer the aforesaid amount of Rs. 1,22,23,250/- from the savings bank account maintained by the assessee in the aforesaid branch to the special capital gain account maintained with the same branch of the said bank - Assessee has furnished a certificate issued by the bank on 15.12.2010 wherein it has been confirmed that instruction has been received from the assessee on 30.7.2008 for transfer / deposits of funds to the special capital gain account - Evidence of deposits was not filed alongwith the return of income Held that - Return of income was filed in electronic form. The return in electronic mode does not permit filing of any documents/ annexures therewith and accordingly, the assessee was prevented by law to file a certificate of deposits alongwith return of income - Evidence of deposits was filed by the assessee during the course of assessment proceedings - The bank had acted upon the instruction of the assessee on 31.7.2008 to deposit the money in special capital gain account - Assessee has duly complied with the requirements of law - Return of income was furnished in electronic form. The return of electronic mode does not permit filing of any documents/ annexures therewith. Denial of claim of deduction/exemption under the Act merely because the return of income was not accompanied by the prescribed documents / certificate, is not appropriate - Requirement is only directory and filing of necessary document/certificate in the assessment proceedings would be in compliance with law Decided in favor of Assessee. Denial of exemption u/s 54F on the ground of payment made by M/s Capital Advertising Pvt. Ltd. wherein the assessee was Director and not by the assessee himself Held that - Assessee has duly made the arrangement for booking of the flat and necessary documentation were made by the assessee in his individual capacity. Only the payment of Rs. 55,70,800/- was done on behalf of the assessee by M/s Capital Advertising Pvt. Ltd. and subsequently, the assessee had duly reimbursed the company amount involved - Section 54F does not require one to one correlation between the capital gain arising out of transfer of long term capital asset and utilization thereof for purchase/construction of residential house - Exemption to the extent of Rs. 55,70,800/- cannot be denied on the facts and circumstances of the case Decided in favor of Assessee.

Summary

Issues Involved:

1. Denial of exemption under Section 54F of the Income-tax Act, 1961.
2. Enhancement of assessment by withdrawing the appellant's claim for exemption.

Detailed Analysis:

Issue 1: Denial of Exemption under Section 54F

The appellant contested the denial of exemption of Rs. 1,22,23,250 under Section 54F by the Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)]. The key points of contention were:

- Deposit Timing and Proof: The AO rejected the claim because the deposit into the Special Capital Gains Account was made after filing the return of income, and the return was not accompanied by proof of deposit. The appellant argued that instructions to transfer the amount were issued on 30.07.2008, before the return filing date, but were acted upon by the bank on 31.07.2008. The return was filed electronically, preventing attachment of documents, and the proof was provided during assessment proceedings.

- Utilization of Funds: The AO also denied the exemption due to the appellant's failure to demonstrate the utilization of the deposited amount for constructing or purchasing a residential house within the stipulated period. The appellant contended that the funds were used for constructing an apartment and that the AO erred in considering the utilization issue during the assessment year in question, as the three-year period for utilization had not yet expired.

The Tribunal found the appellant's arguments cogent, noting that the instructions to the bank were given on time and the delay in deposit was due to the bank's processing time. The Tribunal also recognized the electronic filing constraints and the sufficiency of providing proof during assessment. It was held that the appellant complied with the requirements of Section 54F(4), and the denial of exemption was unwarranted.

Issue 2: Enhancement of Assessment by Withdrawing Exemption

The CIT(A) enhanced the assessment by withdrawing the exemption of Rs. 55,70,800 under Section 54F, arguing that the payment was made by Capital Advertising Pvt. Ltd. (CAPL) and not by the appellant. The appellant argued that the payment was made on his behalf by CAPL, and he subsequently reimbursed the company. The appellant also contended that Section 54F does not require a direct correlation between the sale proceeds and the utilization for purchasing or constructing a residential house.

The Tribunal agreed with the appellant, emphasizing that the section does not necessitate a one-to-one correlation between the capital gains and the utilization for residential property. The appellant's arrangement and subsequent reimbursement were considered valid, and the enhancement by CIT(A) was deemed unsustainable.

Conclusion:

The Tribunal allowed the appeal, overturning the denial of exemption under Section 54F and the enhancement of assessment. The appellant's compliance with the law and the practical constraints of electronic filing were acknowledged, leading to the deletion of the disallowance and the reinstatement of the claimed exemptions.