2020 (4) TMI 221 - AT - Income Tax

Correct working of the capital gain for which exemption claimed u/s 54F - AR submitted that for the addition made there had been no specific notice and the assessee did not get proper opportunity to explain the working of the long term capital gain - CIT- A enhancing addition - HELD THAT - AO admitted the claim of the assessee for exemption u/s 54F(1)(b) in respect of investment on long term capital gain but instead of taking actual sale consideration received, has adopted the figure of sale consideration by invoking Section 50C. This is not in accordance with the provision of Section 50C which has created a deeming fiction. Section 54F is an exemption provision and it has given its applicability in itself, therefore, Section 50C will not come under picture. Long Term Capital Gain exemption is admissible u/s 54F(1)(b) wherein total taxable gain comes to ₹ 2,68,830/- only as the investment made by the assessee adopting the figure of the actual sale consideration received in consequence with Section 54F of the Income Tax Act. CIT(A) while enhancing the addition has ignored the very effect of the provisions of Section 54F. Besides this, the CIT(A) while enhancement has not given any reasons as to why the enhancement is necessary and why the assessee is not justified in adopting the figure of the actual sale consideration received. Thus the Assessing Officer as well as CIT(A) failed to justify the stand by making addition of ₹ 30,17,456/- in respect of long term capital gain without granting exemption u/s 54F of the Income Tax Act. It is pertinent to note that we have already taken a view in case of assessee s wife Smt. Anita Miglani 2019 (12) TMI 1100 - ITAT DELHI wherein the same order of the CIT(A) was under challenge that the enhancement was not right. The facts of the present case that of assessee s case is identical, therefore, the appeal of the assessee is allowed.

Summary

Issues:
Appeal against order taxing long term capital gain, Misdirection in calculating long term capital gain exemption under Section 54F(1)(a) of the Act.

Issue 1: Appeal against order taxing long term capital gain

The appeal was filed against the order passed by CIT(A)-IV, Kanpur, confirming the action of the assessing officer in taxing the long term capital gain, which was enhanced to ?64,07,515/- from ?30,17,456/- as declared in the return of income. The appellant contended that the enhancement was made without applying a judicious mind and was unjustified, unwarranted, illegal, and without merits. The Assessing Officer calculated and worked out the addition of ?30,17,456/- to the income based on the full value of consideration as per Section 50C. However, the appellant claimed exemption under Section 54F(1)(b) of the Act for the investment made in the purchase of a new residential house. The CIT(A) enhanced the addition of long term capital gain, stating that no exemption would be available since the assessee suffered capital loss, even though capital gain was charged to tax after applying Section 50C. The appellant argued that the CIT(A) misdirected and enhanced the addition, ignoring the investment made in the purchase of the new residential house, which is essential for allowing the benefit of deduction under Section 54F(1)(b) of the Act. The Tribunal held that the Assessing Officer and CIT(A) failed to justify the addition of long term capital gain without granting exemption under Section 54F of the Income Tax Act. The appeal was allowed in favor of the assessee.

Issue 2: Misdirection in calculating long term capital gain exemption under Section 54F(1)(a) of the Act

The dispute revolved around the working adopted for calculating the benefit of exemption available to the assessee under Section 54F(1)(b) of the Act. The appellant argued that the CIT(A) misdirected by ignoring the investment made in the purchase of the new residential house, which is a crucial criterion for allowing the benefit of deduction under Section 54F. The appellant contended that Section 54F clearly states that the cost of the new asset should be considered in relation to the net consideration, and nowhere does it mention consideration as per Section 50C. The appellant emphasized that the deeming fiction created in Section 50C is limited to the computation of capital gains and should not extend to the exemptions provided under Section 54F. The Tribunal agreed with the appellant's interpretation, stating that Section 54F is an exemption provision and a complete code in itself. The Tribunal held that the CIT(A) erred in enhancing the addition of long term capital gain without considering the provisions of Section 54F. The appeal was allowed in favor of the assessee.

In conclusion, the Tribunal allowed the appeal filed by the assessee against the order of the CIT(A)-IV, Kanpur, regarding the taxation of long term capital gain and misdirection in calculating the long term capital gain exemption under Section 54F(1)(a) of the Act. The Tribunal emphasized the importance of adhering to the specific provisions of the Income Tax Act and ensuring that exemptions are calculated within the framework of the relevant sections without imposing additional legal fictions.