2022 (7) TMI 734 - AT - Income Tax

Deduction u/s 54F - proportionate deduction - As per AO 'net consideration' for the purposes of Section 54F has to be read with Section 50C and therefore held that the assessee's case fell under Section 54F(b) and allowed proportionate deduction - HELD THAT - Net consideration is fully invested in new asset, the whole capital gain should not be charged under section 45 we, therefore, delete addition being the amount wrongly included by the appellant under the head capital gain, and considering the same as per section 54F of the Act, no amount is liable to be taxed. Accordingly, appeal of the assessee is allowed.

Summary

Issues Involved:

1. Justification of the disallowance of Rs. 9,933,057 under the head capital gain.
2. Interpretation of Section 54F in relation to the net consideration and investment in new property.
3. Application of Section 50C and its impact on Section 54F deductions.
4. Procedural fairness in the assessment process, including the necessity of reference to a valuation officer.

Detailed Analysis:

Issue 1: Justification of the Disallowance of Rs. 9,933,057 under the Head Capital Gain

The assessee filed a return of income declaring a total income of Rs. 1,01,41,590 for the A.Y. 2015-16. During the assessment, it was observed that the assessee realized a capital gain of Rs. 2,15,90,819, claiming a deduction of Rs. 1,16,57,762 under Section 54F. The AO, however, recalculated the deduction under Section 54F, allowing only Rs. 24,04,928 and disallowing Rs. 92,52,834. The CIT(A) partly allowed the appeal, upholding the AO's method of calculation based on the deemed stamp duty value under Section 50C instead of the actual sale proceeds.

Issue 2: Interpretation of Section 54F in Relation to the Net Consideration and Investment in New Property

The core issue was whether the entire capital gain should be exempt under Section 54F if the entire net consideration from the sale was reinvested in a new property. The appellant argued that since the entire net consideration of Rs. 1,00,00,000 was invested in a new property, no capital gain should be taxable. The Tribunal referred to the ITAT Jaipur decision in a similar case, where it was held that if the net consideration (actual sale proceeds) is fully invested in a new asset, the entire capital gain should be exempt under Section 54F.

Issue 3: Application of Section 50C and its Impact on Section 54F Deductions

The AO and CIT(A) applied the deemed value under Section 50C to calculate the net consideration for Section 54F deductions, resulting in a lower deduction and higher taxable capital gain. However, the Tribunal, following the ITAT Jaipur decision, held that Section 50C should not influence the computation under Section 54F. The term "net consideration" in Section 54F should refer to the actual sale proceeds received by the assessee, not the deemed value under Section 50C.

Issue 4: Procedural Fairness in the Assessment Process, Including the Necessity of Reference to a Valuation Officer

The appellant contended that the AO should have referred the matter to a valuation officer under Section 50C(2) and that not doing so amounted to a miscarriage of justice. However, since the Tribunal upheld the appellant's primary contention regarding the interpretation of Section 54F, the procedural issues became academic and were dismissed as infructuous.

Conclusion:

The Tribunal concluded that the net consideration was fully invested in the new asset, and thus, the entire capital gain should not be charged under Section 45 of the Act. The addition of Rs. 9,933,057 under the head capital gain was deleted, and the appeal of the assessee was allowed. The judgment emphasized that the provisions of Section 50C should not be read into Section 54F for determining the net consideration, which should be based on the actual sale proceeds. The appeal was allowed, and the order was pronounced in the open court on 12.07.2022.