2018 (11) TMI 549 - AT - Income Tax

Denying the claim of deduction u/s 54F - investments in the purchase of flat at Mumbai - AO disallowed the claim of the assessee on the ground that assessee was required to deposit the entire sale consideration in the scheme of deposits in capital gains account on or before the due date of filing of return of income - assessee did not deposit the said amount and as such the provisions of sec. 54F are not applicable - whether the assessee would be entitled for benefit of section 54F of the Act even he does not deposit the sale consideration as contemplated u/s 54F(4)? - Held that - In the present case, the assessee purchased new asset on and had transferred the original asset on 8/01/2008. As per Section 54F(1) the exemption would be available if the assessee purchased the residential house within two years after the date when transfer took place. As per the judgment of Hon ble Karnataka High Court in K. RAMACHANDRA RAO 2015 (4) TMI 620 - KARNATAKA HIGH COURT the provisions of section 54F(4) would not be attracted in the event if the assessee has purchased or constructed the residential house within the period prescribed under section 54(1) of the Act. In the case in hand, there is no dispute with regard to the fact that the assessee had purchased within two years the period prescribed u/s.54(F(1) a new asset on 05/10/2009 from the date of transfer of the original asset. The Revenue has not cited or placed on record any contrary judgment by the Hon ble Jurisdictional High Court or Hon ble Supreme Court. Therefore, we hereby set aside the impugned order and direct the AO to re-compute the assessed income after granting the benefit of section 54F of the Act to the assessee. Addition in respect of the payments made by cash credit card - A.O. disallowed expenditure on the ground that expenses incurred do not relate to business of company - Held that - Director of the company incurs expenditure for and on behalf of the company but for allowance of such expenditure, it is incumbent upon the assessee to prove the nature of expenditure and purpose of the expenditure and correlate with the business of the company. In the present case, the assessee has merely made a bald statement. The ledger account belonging to the company so submitted speaks of cash credit which requires verification by the assessing officer, whether such expenditure had any link with the business of the company in which the assessee is a Director. We therefore, set aside this issue to the file of the A.O. for a limited purpose to verify the link between the expenses and the business of the company where the assessee is the Director. In the event if the A.O. finds that there is some relation with the business of the company and expenditure incurred by the assessee, he will allow such expenses and delete the addition to that extent - Assessee s appeal are allowed for statistical purpose.

Summary

Issues Involved:
1. Denial of exemption under Section 54F of the Income Tax Act.
2. Addition of credit card payments as personal expenses.

Detailed Analysis:

1. Denial of Exemption under Section 54F of the Income Tax Act:

The primary issue revolves around the denial of a deduction claim under Section 54F of the Income Tax Act. The assessee sold plots for ?30,00,000 on 27.02.2012 and purchased a residential house in Mumbai for ?2,57,00,000. The Assessing Officer (A.O.) disallowed the claim because the assessee did not deposit the sale consideration into the capital gains account scheme by the due date of filing the return as required under Section 54F(4). The CIT(A) upheld this decision.

The assessee argued that the investment in the residential house was made within the permissible period, citing various case laws, including CIT Vs. Rajesh Kumar Jalan and CIT Vs. Jagtar Singh Chawla, which support the view that the investment within the stipulated period qualifies for the exemption even if the deposit was not made in the capital gains account.

The Tribunal referenced the case of Ashok Kapasiawala Vs. ITO, which followed the Karnataka High Court's decision in CIT Vs. K. Ramachandra Rao. The Karnataka High Court had ruled that if the capital gains are invested in a new residential property within the stipulated period, the requirement to deposit the amount in the capital gains account does not apply. The Tribunal concluded that since the assessee utilized the sale consideration within one year from the sale date, the deduction under Section 54F should be allowed.

2. Addition of Credit Card Payments as Personal Expenses:

The second issue pertains to the addition of ?5,22,614 made by the A.O. on account of credit card payments, which were claimed as business expenses by the assessee, a director of a company. The A.O. disallowed these expenses, considering them personal, and the CIT(A) upheld this decision.

The assessee contended that the credit card was used for company expenses and provided a certificate from the company to support this claim. However, the Tribunal noted that the assessee failed to provide sufficient evidence to demonstrate that the expenses were related to the business activities of the company. The Tribunal emphasized the necessity for the assessee to prove the nature and purpose of the expenses and their correlation with the business.

Consequently, the Tribunal remanded the issue back to the A.O. for verification. The A.O. was instructed to ascertain whether the expenses were indeed related to the company's business. If a connection is established, the A.O. should allow the expenses and delete the addition accordingly.

Conclusion:

The Tribunal partly allowed the appeal. It directed the A.O. to grant the deduction under Section 54F, following the precedent set by the Karnataka High Court, and remanded the issue of credit card expenses for further verification to determine their business relevance. The decision underscores the importance of adhering to legal provisions and providing substantial evidence to support claims.