2015 (5) TMI 69 - AT - Income Tax

Wrong section quoted while claiming deduction u/s 54 or u/s 54F - Conditions relevant to sections fulfilled - Held that - From the various details furnished by the assessee, it is obvious that the assessee is otherwise entitled to deduction u/s.54. The Ld. Departmental Representative also fairly conceded that the assessee is entitled to claim deduction u/s.54. However, since the assessee had made a claim under the wrong section and proper claim was not made before the AO, therefore, the same was denied to him. Since the assessee fulfils the conditions prescribed in section 54 for claiming the deduction, therefore, merely because the assessee had made a claim under a wrong section instead of the correct section, the same in our opinion, should not be a ground to deny the benefit of deduction otherwise allowable to the assessee. Although, in the instant case, the assessee is a practicing Chartered Accountant and who is supposed to be conversant with the law, however, he has made the claim under the wrong section 54D instead of the correction section 54. However, he is otherwise entitled to deduction u/s.54 as per the facts of the case. Therefore, in view of the various decisions, Paramjeet Singh Chhabra 2015 (4) TMI 939 - ITAT INDORE relied on by the CIT(A) and in view of the CBDT Circular No. 14 (XL-35) dated 11-04-55, we are of the considered opinion that the relief which is otherwise due to the assessee should not be denied. In this view of the matter and in view of the detailed reasoning given by the CIT(A) and in absence of any distinguishing features brought to our notice, we do not find any infirmity in the order of CIT(A). Accordingly, the same is upheld and the grounds raised by the Revenue are dismissed. - Decided against the revenue.

Summary

Issues Involved:
1. Eligibility of the assessee for deduction under Section 54 of the Income Tax Act.
2. Incorrect claim of deduction under Section 54D instead of Section 54.
3. Rejection of exemption under Section 54F due to the use of borrowed funds for purchasing a new house.

Detailed Analysis:

1. Eligibility of the Assessee for Deduction under Section 54:
The assessee, a practicing Chartered Accountant, filed his return of income declaring a total income of Rs. 93,920/-. During the assessment, the Assessing Officer (AO) noted that the assessee had shown income from capital gains from the sale of a plot and claimed a deduction under Section 54F for the purchase of a new residential property. The AO disallowed the claim on the grounds that the new property was purchased before the sale of the original asset and that the purchase was funded by a home loan, which, according to the AO, disqualified the deduction under Section 54F.

2. Incorrect Claim of Deduction under Section 54D Instead of Section 54:
The AO noted that the assessee had also claimed a deduction under Section 54D for the sale of a bungalow, which was not applicable as Section 54D pertains to compulsory acquisition of property. The assessee later corrected this to a claim under Section 54. The CIT(A) accepted this correction, noting that the assessee had indeed purchased a new residential property within the stipulated time frame, thus fulfilling the conditions of Section 54.

3. Rejection of Exemption under Section 54F Due to Use of Borrowed Funds:
The AO rejected the exemption under Section 54F, citing that the new house was purchased using borrowed funds. However, the CIT(A) and the Tribunal found that there is no requirement in Section 54 that the sale proceeds of the old house must be used for purchasing the new house. The relevant provisions only require that the new house be purchased within the specified time frame, regardless of the source of funds. This interpretation aligns with the judgments in CIT vs. Dr. P.S. Pasricha and K.C. Gopalan, where the courts held that the source of funds is irrelevant for claiming the deduction under Section 54.

Conclusion:
The Tribunal upheld the CIT(A)'s decision, noting that the assessee is entitled to the deduction under Section 54 despite initially claiming it under the wrong section. The Tribunal emphasized that the relief due to the assessee should not be denied merely because of a clerical error in citing the wrong section. The Tribunal also referenced CBDT Circular No.14, which mandates that officers should assist taxpayers in claiming rightful deductions. Consequently, the appeal filed by the Revenue was dismissed, affirming the CIT(A)'s order allowing the deduction under Section 54 and rejecting the AO's disallowance.