2020 (1) TMI 1058 - AT - Income Tax

Eligibility for deduction u/s 54 - denial of claim as assessee had not complied with the requirement of section 54 by depositing the amount into the specific bank account as notified in the Act, in terms of section 54(2) - HELD THAT - The assessee should be given the benefit of deduction u/s 54 of the Act on the sum invested by the assessee in the construction of new residential house within the time allowed u/s 139(4) of the Act. My this view is fortified by the decision of the Co-ordinate Bench of the Kolkata Tribunal in the case of Sunayana Devi v. ITO 2017 (9) TMI 961 - ITAT KOLKATA wherein held that Assessee should be given the benefit of deduction under section 54F and cannot be denied the benefit for the reason that he had not complied with the requirements of section 54(2). Assessee could make investment in construction of new building within three years from the date of transfer of the asset for claiming deduction u/s 54 of the Act. Section 54 of the Act are beneficiary and are to be considered liberally. In view of the above discussion, I am inclined the remit the issue to the file of the Assessing Officer to quantify the amount of exemption u/s 54 of the Act. The assessee is directed to prove the investment in residential building as prescribed u/s 54 of the Act before the due date of filing of the return u/s 139(4). Accordingly, this issue is remitted for the limited purpose of quantifying the amount of deduction to the file of the A.O. after affording a reasonable opportunity of being heard to the assessee. - Decided in favour of assessee for statistical purposes.

Issues Involved:

1. Justification of the addition of ?34,24,681 by disallowing the deduction claimed under Section 54 of the Income Tax Act.
2. Compliance with the deposit requirement under Section 54(2) of the Income Tax Act.
3. Applicability of the jurisdictional High Court decision in the case of CIT v. K. Ramachandra Rao.
4. Charging of interest under Section 234B of the Income Tax Act.
5. Consideration of revised return under Section 139(5) of the Income Tax Act.

Issue-Wise Detailed Analysis:

1. Justification of the Addition of ?34,24,681:
The assessee contested the addition of ?34,24,681 made by the Assessing Officer (AO) by disallowing the deduction claimed under Section 54 of the Income Tax Act. The AO determined that the assessee reinvested only ?22,06,000 up to the date of filing the return of income under Section 139(1) and thus restricted the deduction to this amount. The CIT(A) upheld the AO's decision, stating that the unutilized sale proceeds were not deposited in the Capital Gains Scheme as required by Section 54(2). The Tribunal considered the assessee's reliance on the judgment of the jurisdictional High Court in CIT v. K. Ramachandra Rao, which allowed for deduction under Section 54F even if the amount was not deposited in the specified scheme, provided it was invested in a residential house within the stipulated period.

2. Compliance with the Deposit Requirement under Section 54(2):
The CIT(A) and the Departmental Representative emphasized the necessity of depositing the unutilized capital gain in the Capital Gains Scheme before furnishing the return of income under Section 139(1). The Tribunal, however, noted the beneficial nature of Section 54 and referenced decisions from various courts, including the Karnataka High Court and the Kolkata Tribunal, which supported the view that the deduction should be allowed if the investment in a residential house was made within the time allowed under Section 139(4).

3. Applicability of the Jurisdictional High Court Decision in CIT v. K. Ramachandra Rao:
The Tribunal acknowledged the binding nature of the Karnataka High Court's decision in CIT v. K. Ramachandra Rao, which held that if the assessee invested the entire amount in the construction of a residential house within three years from the date of transfer, they could not be denied deduction under Section 54F on the ground of non-deposit in the specified scheme. The Tribunal found this judgment applicable and binding, despite the Departmental Representative's reliance on contrary judgments from other jurisdictions.

4. Charging of Interest under Section 234B:
The assessee challenged the calculation of interest under Section 234B, arguing that the rate, method of calculation, and quantum were not discernible from the assessment order. The Tribunal did not specifically address this issue in the detailed analysis, focusing instead on the primary issue of deduction under Section 54.

5. Consideration of Revised Return under Section 139(5):
The assessee argued that they were entitled to file a revised return under Section 139(5) upon receiving a notice under Section 142(1), and that the AO should have considered payments made up to the date available for filing the revised return. The Tribunal remitted the issue to the AO to quantify the amount of exemption under Section 54, directing the assessee to prove the investment in the residential building before the due date of filing the return under Section 139(4).

Conclusion:
The Tribunal concluded that the assessee should be given the benefit of deduction under Section 54 for the amount invested in the construction of a residential house within the time allowed under Section 139(4). The issue was remitted to the AO for the limited purpose of quantifying the amount of deduction, with instructions to afford a reasonable opportunity of being heard to the assessee. The appeal was partly allowed for statistical purposes.

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