2019 (1) TMI 789 - AT - Income Tax

Revision u/s 263 - Claim of deduction u/s 54F and 54EC denied - Held that - Section 2(14) is very widely defined to mean property of any kind held by an tax-payer, whether or not connected with his business or profession. The exceptions are also provided u/s 2(14) wherein property shall not be included in the definition of capital asset. As observed that CBDT own circulars bearing 471 dated 15.10.1986 and 672 dated 16.12.1993 are relevant, wherein allotment of flat under self financing scheme is held to be construction for the purposes of capital gains. Thus AO rightly allowed deduction u/s 54F to the assessee vide assessment order dated 20.10.2015 passed u/s 143(3) by the AO and to that extent the said assessment order cannot be termed as perverse or erroneous so far so it is prejudicial to the interest of Revenue calling for interference u/s 263 of the 1961 Act. So, far as deduction u/s 54EC of the 1961 Act is concerned, the assessee made investment of ₹ 50,00,000/- during the year under consideration in NHAI Bonds which is an eligible investment under Section 54EC of the 1961 Act and further investment of ₹ 21,50,000/- was made by the assessee in eligible NHAI Bonds in the immediately succeeding financial year, but within a period of six months from the date of transfer. The deduction u/s 54EC was rightly allowed by the AO for an aggregate amount of ₹ 71,50,000/- as the amendment to Section 54EC was brought by Finance Act, 2014 w.e.f. 01.04.2015 which restricted/capped the deduction u/s 54EC to a maximum sum of ₹ 50,00,000/- for investment made in qualified bonds during the year in which transfer took place as also by including investment in eligible bonds in immediately succeeding year. On the both the issues on which learned Pr. CIT invoked provisions of Section 263, it could not be said that the assessment order dated 20-10-2015 passed by the AO u/s 143(3) of the 1961 Act was erroneous so far as prejudicial to the interest of Revenue calling interference u/s 263 of the 1961 Act. Thus, not only did the AO made proper inquiry with respect to correctness of claim of computation of capital gain filed by the assessee but also applied law correctly by allowing the said claim(s) of the assessee in the return of income filed with Revenue. The assessee has rightly relied upon decision of Hon ble Bombay High Court in the case of Moil Limited v. CIT reported in (2017 (5) TMI 258 - BOMBAY HIGH COURT). - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the order passed under Section 263 of the Income Tax Act, 1961.
2. Correctness of computation of long-term capital gains.
3. Entitlement to deductions under Sections 54F and 54EC of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Validity of the Order Passed Under Section 263 of the Income Tax Act, 1961:
The assessee filed an appeal against the order dated 12.03.2018 passed by the Principal Commissioner of Income Tax (Pr. CIT) under Section 263 of the Income Tax Act, 1961. The Pr. CIT set aside the assessment order dated 20.10.2015, passed under Section 143(3) of the Act, holding it to be erroneous and prejudicial to the interest of Revenue. The Pr. CIT directed the Assessing Officer (AO) to frame a fresh assessment after conducting a proper inquiry regarding the correctness of the computation of long-term capital gains.

2. Correctness of Computation of Long-Term Capital Gains:
The assessee, engaged in consultancy services, filed a return of income declaring total income of ?8,17,590/- for the assessment year 2013-14. The return included long-term capital gains of ?15,982/-. The Pr. CIT observed discrepancies in the computation of long-term capital gains, particularly the inclusion of four residential flats and monetary consideration of ?40 lakhs as part of the consideration under a development agreement dated 31.12.2012. The Pr. CIT noted that the flats were not yet constructed, and thus, their inclusion for deduction under Section 54F was questionable. Additionally, the Pr. CIT pointed out that the deduction under Section 54EC was claimed at ?71,50,000/-, exceeding the permissible limit of ?50,00,000/-.

3. Entitlement to Deductions Under Sections 54F and 54EC of the Income Tax Act, 1961:
The assessee claimed deductions under Sections 54F and 54EC, which were allowed by the AO in the assessment order dated 20.10.2015. The Pr. CIT challenged the deduction under Section 54F on the grounds that the flats were not yet constructed and thus could not be considered for deduction. The Pr. CIT also restricted the deduction under Section 54EC to ?50,00,000/-. The assessee argued that the AO had thoroughly scrutinized the claim and allowed the deductions correctly. The assessee also cited case laws to support the claim that the restriction on Section 54EC to ?50,00,000/- was applicable only from the assessment year 2015-16.

Tribunal's Findings:
The Tribunal observed that the AO had made proper inquiries during the assessment proceedings and had duly considered the documents related to the computation of long-term capital gains. The Tribunal found that the assessee's claim for deduction under Section 54F was justified as the development agreement entitled the assessee to the flats, which were to be constructed by the developer. The Tribunal also upheld the assessee's claim for deduction under Section 54EC, noting that the investments were made within six months from the date of transfer and in two successive financial years, thus complying with the provisions applicable for the assessment year 2013-14.

Conclusion:
The Tribunal held that the assessment order dated 20.10.2015 passed by the AO was neither erroneous nor prejudicial to the interest of Revenue. The Tribunal quashed the order dated 12.03.2018 passed by the Pr. CIT under Section 263 of the Income Tax Act, 1961, and allowed the appeal filed by the assessee. The order was pronounced in the open court on 14.11.2018.