2015 (9) TMI 123 - AT - Income Tax

Addition on account of Capital Gains - denial of the exemption u/s 54 - CIT(A) deleted the addition - Held that - As per the scheme of Section 54 of the Act and Circular No 495, it is clear that capital gains cannot be charged to income tax in the previous year in which the transfer of the original asset takes place if the amount of capital gain is utilised by the assessee for acquisition of new asset and the balance, if any, is deposited on or before the due date for filing of return of income u/s 139(1) in the specified Capital Gains Account Scheme and if the amount is not utilised fully for acquiring the new asset within the prescribed period, the unutilised amount can be taxed in the year in which the period expires. On facts of the case, exemption u/s 54 cannot be denied to the assessee in the year in which the transfer of asset took place as far as the assessee has invested ₹ 54,40,000/- in purchase of land on which the house has been constructed. The issue of disallowance, if any, will have to be considered in the previous year in which the period of three years from the date of the transfer of the original asset expires. - Decided against revenue. Investment in the Capital Gains Accounts Scheme, 1988 - Held that - It is very much evident and an admitted fact that the deposit of ₹ 63,00,000/- was made in the Savings Account or Deposit Account A before 31/07/2008 i.e. before the due date of filing of return u/s 139(1) of the Act and thus such deposit was well within the parameters laid down in clause 4(4)the Capital Gains Account Scheme, 1988 (supra). Therefore, the contention of the Department that the transfer from this Deposit Account A to another Deposit Account B (Fixed Deposit Account) on 06.08.2008, i.e. after the due date of filing of return of income u/s 139(1), does not conform to the parameters laid down in clause 4(4) of the Capital Gains Account Scheme, 1988 (supra) is based on an incorrect interpretation. Since the entire initial deposit in the savings bank (Deposit A account) amounting to ₹ 63,00,000/- was made within the prescribed period, it is immaterial that a further transfer from this account was made to Deposit B account (Fixed Deposit Account) after the prescribed due date, the exemption on this count also cannot be denied to the assessee. Even if the transfer is not as per law in the year of withdrawal from Deposit account A, it can be considered as amount withdrawn and not utilised and addition can be made as per law but in the present year, the exemption cannot be denied. We accordingly hold that the assessee cannot be denied the benefit of exemption u/s 54 on deposited in the savings account of the Capital Gains Scheme, 1988 and we dismiss the appeal of the revenue on this issue also - Decided against revenue.

Summary

Issues Involved:
1. Investment of Rs. 54,40,000 towards the purchase of a plot of land.
2. Deposit of Rs. 63,00,000 in the Capital Gains Accounts Scheme, 1988.

Detailed Analysis:

1. Investment of Rs. 54,40,000 towards Purchase of Plot of Land:

The Department's appeal contested the deletion of an addition of Rs. 1,16,40,000 on account of Capital Gains by the CIT(A). The assessee sold a residential property for Rs. 2 crores and invested Rs. 54,40,000 in a residential plot and Rs. 63,00,000 in the Capital Gains Accounts Scheme. The AO disallowed the exemption claim for Rs. 54,40,000, arguing that the construction of the new residential house was not completed within the stipulated three years from the date of transfer, as required under Section 54 of the Income Tax Act, 1961. The AO relied on an Inspector's report indicating that the construction was at a preliminary stage.

In the first appellate proceedings, the CIT(A) allowed the appeal, noting that the assessee had indeed invested in a residential plot and deposited the balance amount in the specified Capital Gains Account Scheme within the prescribed due date. The Tribunal upheld the CIT(A)'s decision, citing the judgment of the Hon'ble Madras High Court in CIT vs Sardarmal Kothari & Another, which held that non-completion of construction within three years was immaterial if the land was purchased and construction commenced. The Tribunal emphasized that the issue of disallowance should be considered in the year when the three-year period expires, not in the year of transfer.

2. Deposit of Rs. 63,00,000 in the Capital Gains Accounts Scheme, 1988:

The AO also disallowed the exemption claim for Rs. 63,00,000, arguing that the deposit was made beyond the due date for filing the return of income. Although the initial deposit in the Capital Gains Account Scheme (Savings Account) was made on 18.07.2008, the transfer to the Fixed Deposit Account occurred on 06.08.2008, after the due date.

The Tribunal referred to Clause 4(4) of the Capital Gains Account Scheme, 1988, which allows deposits to be made before the due date for filing the return of income. The Tribunal noted that the AO's Remand Report confirmed that the deposits were made in the Savings Account before the due date. Therefore, the transfer to the Fixed Deposit Account after the due date was immaterial. The Tribunal held that the exemption could not be denied based on this transfer, as the initial deposit was within the prescribed period.

Conclusion:

The Tribunal dismissed the Department's appeal on both issues, affirming the CIT(A)'s decision to allow the exemption claims. The cross-objections filed by the assessee were also dismissed as they were vague and merely in support of the CIT(A)'s order. The combined result was that both the appeal of the revenue and the cross-objections of the assessee were dismissed.