2018 (7) TMI 1640 - AT - Income Tax

Exemption u/s. 54 - sale consideration was not deposited in the capital accounts scheme before due date of filing return - non adherence to conditions stipulated under the provisions of section 54F(4) - Held that - The assessee could make investment in construction of new residential building within three years from the date of transfer of original asset to claim deduction u/s. 54F of the Act. Provisions of section 54F are beneficial provisions and are to be considered liberally. See COMMISSIONER OF INCOME-TAX VERSUS A. RAAJENDRA PRASAD 2007 (11) TMI 124 - ANDHRA PRADESH HIGH COURT We are inclined to remit the issue to the file of the Assessing Officer to examine the fulfillment of the conditions u/s. 54F of the Act through intermediary period, i.e., from the date of transfer of the capital asset to the date of actual investment in construction of residential building. Accordingly the issue of allowability of deduction u/s. 54F is remitted to the file of the Assessing Officer with the direction to the assessee to prove the investment in the residential building as prescribed u/s. 54F of the Act before the due date of filing of return of income u/s. 139(4) of the I.T. Act, i.e., 31/03/2007. Accordingly, this issue is remitted to the file of the Assessing Officer for fresh consideration after giving adequate opportunity of hearing to the assessee. The appeal of the Revenue is partly allowed for statistical purposes.

Summary

Issues Involved: Exemption under Section 54, Conditions under Section 54F(4), Tax Effect and CBDT Circular, Investment in Residential Property, Compliance with Section 54F.

Detailed Analysis:

1. Exemption under Section 54:
The Revenue contended that the CIT(A) erred in granting exemption under Section 54 without considering that the sale consideration was not deposited in the Capital Gains Accounts Scheme before the due date of filing the return. The assessee had claimed exemption under Section 10(37) for capital gains from the sale of agricultural land, which was initially allowed by the Assessing Officer. However, the CIT set aside this assessment, directing a fresh assessment. The assessee subsequently claimed exemption under Section 54F, arguing that the proceeds were invested in a new residential property within the stipulated time.

2. Conditions under Section 54F(4):
The Revenue argued that the assessee did not comply with Section 54F(4), which requires the deposit of the unutilized amount in the Capital Gains Accounts Scheme within the due date of filing the return under Section 139(1). The CIT(A) observed that the assessee purchased the new property within two years of the transfer, fulfilling the conditions under Section 54F. The Assessing Officer had denied the exemption on the grounds that the investment was not made within three years from the transfer date and the amount was not deposited in the specified scheme.

3. Tax Effect and CBDT Circular:
The assessee objected to the Revenue's appeal, citing that the tax effect was below the monetary limit of ?10 lakhs as per CBDT Circular No. 21/2015. The tax effect in this case was only ?4,14,625/-. The Ld. AR emphasized that the appeal violated the CBDT’s instructions and should be dismissed. The Ld. AR also cited various case laws supporting the validity of the circular and the procedure to be followed when the tax effect is below the prescribed limit.

4. Investment in Residential Property:
The assessee had reinvested a total amount of ?19.78 lakhs in a new residential house, purchasing land and a partially built house, and incurring additional expenses for completion. The CIT(A) found that the investment was made within the stipulated period, thus fulfilling the conditions under Section 54F. The Revenue argued that the investment was made after the due date of filing the return, and the amount should have been deposited in the Capital Gains Accounts Scheme.

5. Compliance with Section 54F:
The Tribunal noted that the assessee filed the return on 18/07/2006, and the due date for investment under Section 54F should be considered as per Section 139(4). The Karnataka High Court and Guwahati High Court have held that the due date for investment refers to the extended due date under Section 139(4). The Tribunal agreed with this interpretation but emphasized that the amount should have been deposited in the specified scheme during the intermediary period. The Tribunal remitted the issue to the Assessing Officer to examine the fulfillment of conditions under Section 54F, directing the assessee to prove the investment before the due date under Section 139(4).

Conclusion:
The Tribunal partly allowed the Revenue's appeal for statistical purposes, remitting the issue to the Assessing Officer for fresh consideration. The Cross Objection filed by the assessee was dismissed as infructuous. The order was pronounced in the open court on 10th July, 2018.