2020 (8) TMI 70 - AT - Income Tax

Deduction u/s 54F disallowed - sale proceeds received by the assessee was utilised for purchase of the new residential property in the name of his son AND new asset is also purchased within the due date of filing of the return by the assessee - bank loan obtained by the assessee s son from the HDFC Bank does not appear to be the source for the purchase of the new residential house by the assessee s son - HELD THAT - Violations made by the assessee s son with respect to the terms of loan agreement entered with HDFC Bank towards the purchase of the residential house is of no relevance as far as the Income Tax Act is concerned for granting deduction U/s. 54 of the Act. Penal action against such violation if any has to be initiated by the Bank, as per the Banking Regulations Act or as per the terms of the agreement between them and not by the Revenue. Case decided SHRI KAMAL WAHAL 2013 (1) TMI 401 - DELHI HIGH COURT has also held that wherein the assessee purchases new house in the name of his wife and not in the name of any stranger who was unconnected with him, exemption cannot be denied if entire investment had come out of proceeds of old property . From the above it is clear that the assessee has not violated any of the provisions mentioned in section 54F of the Act in order to be denied for the benefit of deduction. Therefore,set aside the order of the Ld CIT (A) on the issue and direct the Ld. AO to grant the benefit of deduction U/s.54F of the Act to the assessee

Summary

Issues:
1. Disallowance of deduction under section 54F of the Income Tax Act.
2. Levying of interest under sections 234A, B & C of the Income Tax Act.

Analysis:

Issue 1: Disallowance of deduction under section 54F of the Income Tax Act
The assessee, engaged in selling mutton and sheep, filed his income tax return for the assessment year (AY) 2012-13, declaring total taxable income as ?1,78,000. During scrutiny assessment, the Assessing Officer (AO) disallowed the claim of deduction under section 54 of the Act. The AO observed discrepancies in the claim made by the assessee regarding the purchase of a new residential house for which deduction under section 54F was sought. The AO opined that since the sale proceeds were not deposited in the capital gain scheme account and the new asset was not sourced from the sale consideration received by the assessee, the assessee was not eligible for the deduction. The Commissioner of Income Tax (Appeals) [CIT(A)] confirmed the AO's order. The CIT(A) noted discrepancies in the documents provided by the assessee and rejected the claim for deduction under section 54F. However, the ITAT Hyderabad, after considering submissions from both sides, found that the sale proceeds were indeed utilized for purchasing the new residential property in the name of the assessee's son within the due date of filing the return. The ITAT held that the assessee was not obligated to deposit the sale proceeds in the capital gain scheme account and directed the AO to grant the benefit of deduction under section 54F to the assessee. The ITAT emphasized that the violations made by the assessee's son with respect to the loan agreement did not affect the eligibility of the assessee for the deduction.

Issue 2: Levying of interest under sections 234A, B & C of the Income Tax Act
Regarding the interest levied under sections 234A, B & C of the Act, the ITAT upheld the CIT(A)'s order confirming the levy of interest. The ITAT stated that the charging of interest was consequential and mandatory, thereby affirming the decision of the CIT(A) on this issue. The ITAT also mentioned that the delay in pronouncing the order was due to the extraordinary situation caused by the Covid-19 pandemic, citing a decision of the Mumbai Bench of the Tribunal for justification. The ITAT partially allowed the appeal of the assessee, setting aside the CIT(A)'s order on the deduction issue and directing the AO to grant the benefit of deduction under section 54F of the Act while confirming the levy of interest under sections 234A, B & C.

In conclusion, the ITAT Hyderabad partially allowed the appeal of the assessee, granting the deduction under section 54F while confirming the levy of interest under sections 234A, B & C of the Income Tax Act.