2019 (1) TMI 1134 - AT - Income Tax

Deduction claimed u/s. 54 - Profit on sale of property used for residence - assessee has not opened any capital gain account within due date of filing the return of income - deposit of balance capital gain amount in capital gain account scheme upto the date of filing of return u/s. 139(4) - Held that - The assessee is eligible for getting deduction u/s. 54(1) if (i) he has purchased a property within one year prior to the date of sale of property and (ii) if the assessee purchased a new property within two years from the date of sale of original asset or if the assessee has constructed the house within three years from the date of sale of original asset. If the assessee is unable to invest entire capital gain before furnishing of return of income u/s. 139, he has to deposit the unutilized amount of capital gain by opening an account in any nationalized bank under the Capital Gain Scheme. From the perusal of the order of the authorities below, we find that the assessee has furnished his return of income on 31.03.2010 u/s. 139(4) and he has spent money to the extent of ₹ 61,33,234/- upto the filing of its return. CIT(A) has followed the decision in the case of CIT v. Rajesh Kumar Jalan 2006 (8) TMI 126 - GAUHATI HIGH COURT . The assessee can deposit the balance capital gain amount in capital gain account scheme upto the date of filing of return u/s. 139(4) of the Act. The Assessing Officer has allowed the exemption on the amount spent upto the due date of filing of return only as contemplated u/s. 139(1) of the IT Act. As far as the appropriation of capital gain towards repayment of bank loan is concerned, it is notable that the loan was raised in 2004 and property was also purchased on 27.09.2004. As per provisions of section 54, the amount of capital gain which is appropriated towards purchase of a residential property prior to one year from the date of transfer of asset, is eligible for exemption. In the instant case, the assessee had been the owner of the said property in the year 2004 which does not fall within one year prior to the transfer of asset. Therefore, the amount of capital gain spent by the assessee towards repayment of loan in the instant case is outside the provisions of section 54 and the assessee, thus, would not be eligible for exemption on the balance amount of capital gains used for repayment of loans to the extent of ₹ 1,22,68,857/-. The decisions relied by the ld. CIT(A) in the impugned order, in these peculiar circumstances, are not found applicable on this score, having been based on different footings. Accordingly, the appeal of the Revenue deserves to be allowed.

Summary

Issues:
Appeal against allowing deduction u/s. 54 of the IT Act.

Analysis:
1. The assessee sold a residential property and claimed long-term capital gains exemption u/s. 54 of the IT Act based on investment in a new residential property.
2. The Assessing Officer allowed exemption only to the extent of the amount spent on construction up to the due date of filing the return of income.
3. The ld. CIT(A) deleted the addition, considering the amount paid towards loan repayment and construction within a specific period.
4. The ITAT observed that the assessee filed a belated return and had not opened a capital gain account by the due date.
5. The ITAT analyzed the provisions of section 54 regarding the timeline for property purchase or construction and the deposit of unutilized capital gain.
6. The ITAT concluded that the assessee could deposit the balance capital gain amount in the capital gain account scheme before the date of filing the return u/s. 139(4) of the Act for claiming exemption.
7. Regarding the appropriation of capital gain towards loan repayment, the ITAT noted that the property was purchased in 2004, not falling within one year prior to the transfer of the asset, making the amount spent on loan repayment ineligible for exemption.
8. The ITAT allowed the Revenue's appeal, stating that the decisions relied upon by the ld. CIT(A) were not applicable in the current circumstances.

This detailed analysis of the judgment provides insights into the interpretation of the provisions of section 54 of the IT Act concerning capital gains exemption and the timelines for property purchase, construction, and deposit of unutilized capital gain.