2018 (9) TMI 282 - AT - Income Tax

Deduction u/s 54 - non adherence to primary condition for making a claim - Held that - The primary condition of having purchased a residential house within two years or constructed a residential house within three years after the date of sale or transfer of original asset is not satisfied by the assessee in order to claim exemption under section 54. We, therefore, uphold the impugned order of the ld. CIT(Appeals) in confirming the disallowance made by the Assessing Officer on account of assessee s claim for exemption under section 54. - Decided against assessee. Income tax charged by AO wrongly at 30% instead of 20% on the long-term capital gain - Held that - We direct the Assessing Officer to verify this aspect and allow appropriate relief to the assessee on such verification. Disallowance of promotion expenses - Held that - A copy of the ledger account of the exhibition expenses shows that the expenditure in question was incurred by the assessee for participating in the exhibitions organized at Chennai, Ahmedabad and Rajkot. In our opinion, although the said expenditure was not fully supported by the relevant supporting documentary evidence as pointed out by the authorities below making it unverifiable, the same cannot be entirely disallowed keeping in view the nature of the assessee s business and it would be fair and reasonable to disallow the said expenditure to the extent of 50% for the unverifiable element involved therein. We, accordingly, modify the impugned order of the ld. CIT(Appeals) on this issue and restrict the disallowance of ₹ 46,994/- made out of promotion expenses to ₹ 23,497/- - Decided partly in favour of assessee

Summary

Issues involved:
1. Disallowance of assessee's claim for deduction under section 54 of the Income Tax Act, 1961.
2. Incorrect income tax charged by the Assessing Officer on long-term capital gain.
3. Disallowance of promotion expenses by the Assessing Officer.

Issue 1: Disallowance of assessee's claim for deduction under section 54:
The main issue in this appeal was the disallowance of the assessee's claim for deduction of ?43,44,214 under section 54 of the Income Tax Act, 1961. The assessee, engaged in trading, had declared total income as 'NIL' for the relevant year. The long-term capital gain from the sale of a flat was claimed to be exempt under section 54. However, the Assessing Officer disallowed the claim as the flat in Mumbai was booked jointly with the son of the assessee, and there was no registered agreement for sale executed by the assessee. The flat had not come into the possession of the assessee within the prescribed period. The ld. CIT(Appeals) confirmed this disallowance, stating that the conditions of section 54 were not fulfilled. The Tribunal upheld this decision, noting the lack of a registered agreement for sale and the incomplete possession of the new flat within the specified period.

Issue 2: Incorrect income tax charged on long-term capital gain:
The Assessing Officer charged income tax at 30% instead of 20% on the long-term capital gain. The Tribunal directed the Assessing Officer to verify this aspect and provide appropriate relief to the assessee upon verification.

Issue 3: Disallowance of promotion expenses:
The Assessing Officer disallowed ?46,994 out of the total promotion expenses claimed by the assessee. The disallowance was due to lack of documentary evidence supporting the claimed expenses. The ld. CIT(Appeals) upheld this disallowance as the expenditure was unverifiable. The Tribunal, after examining the ledger account of the expenses, found that while the expenditure was not fully supported by evidence, it was related to the nature of the assessee's business. The Tribunal decided to allow 50% of the claimed expenses, modifying the disallowance to ?23,497, thereby partly allowing Ground No. 4 of the assessee's appeal.

In conclusion, the Tribunal partially allowed the appeal of the assessee, confirming the disallowance of the claim under section 54, directing verification of income tax charged on long-term capital gain, and modifying the disallowance of promotion expenses to 50% of the claimed amount.