2007 (3) TMI 161 - HC - Income Tax

Assessment Question raised that whether the assessee is entitled for the capital gain exemption u/s 54F for extension of house Held that exemption can t be denied by order u/s 143(1)(a)

Summary

Issues:
1. Dismissal of appeal by Tribunal without going into merits of the case.
2. Entitlement of the assessee for capital gains exemption under Section 54F.

Issue 1: Dismissal of appeal by Tribunal without going into merits of the case
The case involved the assessment year 1992-93, where the assessee, an individual, had a residential house at the time of selling a vacant site and used the proceeds for extending the existing property. Initially, the Income Tax authority rejected the claim for exemption under Section 54F during a prima facie adjustment under Section 143(1)(a). The assessee contended that this issue was debatable and should not have been decided at the prima facie stage. The Commissioner of Income Tax (Appeals) accepted the plea, stating that disputed issues cannot be the basis for prima facie adjustments. The appellate authority then examined the merits of the claim and allowed it, finding the denial of deduction under Section 54F to be contrary to the statute. The Tribunal upheld this decision, emphasizing that the issue was debatable, and the Assessing Officer was not justified in making adjustments at the prima facie stage.

Issue 2: Entitlement of the assessee for capital gains exemption under Section 54F
The Revenue appealed the Tribunal's decision, arguing that the benefit under Section 54F was rightly disallowed during the Section 143(1)(a) proceedings since the assessee had a residential house and used the proceeds for property extension. The Revenue contended that the disallowance was in accordance with the law and should have been a prima facie adjustment. However, the High Court disagreed with the Revenue's submission. It cited the scope of Section 143(1)(a) as limited to adjustments of income or loss declared in the return without any doubt or debate. Referring to a previous decision, the Court highlighted that debatable issues should not be considered under Section 143(1)(a) proceedings. The Court rejected the Revenue's contention, emphasizing that a debatable issue cannot be a subject for consideration under Section 143(1)(a) and dismissed the appeal, with no order as to costs.