2018 (1) TMI 1237 - AT - Income Tax

Disallowing the deduction claimed u/s 54F - assessee has not invested the long term capital gains in purchase or construction of a new residential house within the period specified - Held that - The assessee has filed the return of income on 25.7.2014 i.e. after issuance of the legal notice dt. 5.4.2014 to the vendor calling upon him to execute the registered sale deed in favour of the assessee by clearing the bank loan and receiving the balance sale consideration of Rs. 3.4 crores. Therefore as far as the assessee is concerned he was aware of the bank loan and also the default committed by the vendor in repaying the loan. Thus the property was not without an encumbrance as on the date of filing of the return and there was no certainty of the transaction going through. In a case where the sale is not concluded or the agreement of sale is not certain to be honoured the assessee could not have claimed to have purchased the residential property within one year before or within two years after the sale of the original asset or to have constructed the property within three years after the sale of the property for the purposes of claiming the deduction u/s 54F(4) of the Act. Thus the disallowance of assessee s claim u/s 54F is confirmed and the assessee s grounds on this issue are rejected. Unexplained cash deposits - addition u/s 68 - Held that - From the details filed by the assessee it is seen that the assessee had agricultural income and also income from other sources and house property from the A.Ys 2012-13 to 2014-15 sufficient to explain the sources for the deposit of Rs. 6.00 lakhs. Therefore the source for the deposit of Rs. 6.00 lakhs is accepted. However as regards the source for the deposit of Rs. 20.00 lakhs being the amount claimed to be withdrawn for purchase of property in the earlier year and re-deposited the same after the period of one year due to the transaction not materializing is not acceptable. Therefore the addition of Rs. 20.00 lakhs is confirmed. - Decided partly in favour of assessee

Summary

Issues Involved:
1. Disallowance of deduction claimed under Section 54F of the Income Tax Act.
2. Addition of Rs. 20.00 lakhs and Rs. 6.00 lakhs under Section 68 of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Disallowance of Deduction Claimed Under Section 54F:

The assessee filed a return of income for A.Y 2014-15, claiming a deduction under Section 54F of the Income Tax Act. The case was selected for scrutiny due to a large deduction claimed under Section 54 and significant cash deposits in the Savings Bank Account. The Assessing Officer (AO) issued notices under Sections 143(2) and 142(1) and verified the information provided by the assessee. The assessee claimed that the sale consideration of Rs. 1.01 crore was reinvested in purchasing a property at Jubilee Hills for Rs. 1.00 crore, thus resulting in "Nil" capital gains.

The AO issued a show-cause notice questioning the eligibility for deduction under Section 54F, observing that the amount of Rs. 1.00 crore was deposited into the assessee's bank account on 7.11.2013, indicating that the purchase transaction did not materialize. The AO disallowed the deduction, stating that the sale transaction was not concluded within the stipulated period under Section 54F.

The assessee contended that the investment was made within one year before the transfer of the property, and the vendor failed to register the property despite receiving Rs. 1.00 crore. The assessee filed a suit for specific performance in the Civil Court. The AO, however, disallowed the claim, stating that the sale transaction was not completed within the specified period.

Upon appeal, the CIT (A) confirmed the AO's order. The assessee further appealed to the Tribunal, arguing that the investment was made in good faith, and the exemption should be allowed as the conditions under Section 54F were met. The Tribunal considered judicial precedents and found that the common finding was that substantial investment in a new asset within the specified period suffices for claiming exemption under Section 54F. However, the Tribunal noted that the property was encumbered, and the sale agreement was uncertain, distinguishing the case from the precedents cited. Thus, the disallowance of the deduction under Section 54F was confirmed.

2. Addition of Rs. 20.00 Lakhs and Rs. 6.00 Lakhs Under Section 68:

The AO observed cash deposits of Rs. 1.67 crore in the assessee's bank accounts during the financial year 2013-14 and questioned the sources of Rs. 30.00 lakhs and Rs. 20.00 lakhs deposited on 5.11.2013. The assessee explained that Rs. 24.00 lakhs were sourced from earlier withdrawals, but could not satisfactorily explain the source of Rs. 6.00 lakhs. The AO also did not accept the explanation for Rs. 20.00 lakhs, claimed to be re-deposited after a year due to a failed property transaction.

The CIT (A) confirmed the AO's additions, leading to the second appeal before the Tribunal. The Tribunal accepted the source for Rs. 6.00 lakhs, considering the assessee's savings from rental and agricultural income over the past three years. However, the source for Rs. 20.00 lakhs was not accepted due to the lack of satisfactory evidence. Thus, the addition of Rs. 20.00 lakhs was confirmed.

Conclusion:

The Tribunal partly allowed the assessee's appeal, confirming the disallowance of the deduction under Section 54F and the addition of Rs. 20.00 lakhs under Section 68, while accepting the source for Rs. 6.00 lakhs. The judgment emphasizes the importance of conclusive evidence and compliance with statutory conditions for claiming tax exemptions and explaining cash deposits.