2022 (9) TMI 1371 - AT - Income Tax

Disallowance of deduction u/s 54/54F - since the assessee had claimed deduction on account of investment in property purchased during the year but had failed to follow the terms and conditions in law therefore the deduction claimed by the assessee needed to be taxed in the impugned year - Assessee not depositing the capital gain earned in the capital gain account scheme of the Bank as required by law before the due date of filing return of income of A.Y 2011-12 ,in which the deduction was claimed - HELD THAT - For the violation the claim of deduction in the said year itself, i.e A.Y 2011-12, should have been denied. Merely because the assessee files his return for that year belatedly, i.e during the impugned year, does not mean that the deduction claimed will be added to the income of the assessee for the impugned year. The violation of conditions having taken place in A.Y 2011-12 itself, the deduction should have been rightfully denied in that year alone. Even otherwise we find that the assessee in any case has been denied the claim of deduction in A.Y 2011-12, wherein the AO has treated the long term capital gain returned by the assessee on sale of asset as short term capital gain and denied benefit of deduction u/s 54 against the same. Copy of the assessment order for A.Y 2011-12 dated 11/12/2018 was placed before us. The same deduction cannot be denied and added to the income of the assessee in two years. In view of the above therefore the addition on account of denial of deduction u/s 54 is directed to be deleted. Appeal of the assessee is allowed.

Summary

Issues:
Disallowance of deduction under section 54/54F of the Income Tax Act on account of investment in property.

Analysis:

1. The sole issue in this appeal pertains to the disallowance of a deduction under section 54/54F of the Income Tax Act amounting to Rs.37,41,054. The Assessing Officer (AO) reopened the case based on information regarding a significant investment in immovable property by the assessee during the relevant year. The AO highlighted that the assessee had purchased a bungalow and paid stamp duty, subsequently claiming a deduction under section 54 in the assessment year 2011-12. However, the return for that year was filed belatedly, and the terms and conditions for claiming the deduction were not fulfilled according to the AO.

2. The Commissioner of Income Tax (Appeals) upheld the AO's decision, emphasizing the failure of the assessee to comply with the conditions of section 54 in the relevant year. The AO contended that since the deduction was claimed in the assessment year 2011-12 but not fulfilled as per legal requirements, it should be taxed in the impugned year.

3. The Appellate Tribunal, however, disagreed with the CIT(A) and held that the deduction claimed by the assessee in the assessment year 2011-12 should have been denied if the conditions were violated at that time. Merely filing the return belatedly in the subsequent year did not warrant adding the deduction to the income of the assessee for the impugned year. The Tribunal pointed out that the denial of the deduction in the assessment year 2011-12 was already in place due to the treatment of long-term capital gain as short-term capital gain by the AO.

4. Consequently, the Tribunal directed the deletion of the addition on account of the denial of deduction under section 54, amounting to Rs.37,41,054. The appeal of the assessee was allowed, and the order was pronounced on 28th September 2022 in Ahmedabad.

5. In summary, the Tribunal's decision revolved around the correct application of deduction under section 54/54F of the Income Tax Act, emphasizing the importance of complying with the legal requirements in the relevant assessment year and ensuring consistency in the treatment of deductions across different years.