2016 (1) TMI 656 - AT - Income Tax

Entitlement to deduction u/s 54F - as per AO assessee has not deposited the sale proceeds into capital gains account scheme before the due date for filing of return of income - CIT(A) restricted the deduction to the extent of amount paid within the due date for filing of return of income under section 139(4) - Held that - deduction under section 54 / 54F cannot be denied simply because sale proceeds were not deposited into capital gains account scheme in the bank when in fact the said sale proceeds were utilized for purchase or construction of residential property. In the case on hand the Assessing Officer as well as Commissioner of Income Tax (Appeals) partially denied the exemption under section 54F of the Act on the ground that assessee has not deposited the sale proceeds into capital gain account scheme which is not justified in view of the various decisions mentioned above. Thus we direct the Assessing Officer to allow the claim of the assessee and recompute the capital gains in accordance with law after providing adequate opportunity to the assessee. Cost of improvement disallowed - Held that - This has to be examined by the Assessing Officer with reference to the bills produced by the assessee and decide the issue in accordance with law. Thus we restore the issues back to the file of the Assessing Officer to decide the same afresh in accordance with law.

Summary

Issues Involved:
1. Partial allowance of the claim under section 54F.
2. Disregarding the expenditure incurred on improvement for computing capital gains.

Issue-wise Detailed Analysis:

1. Partial Allowance of the Claim under Section 54F:

The assessee sold an immovable property and claimed an exemption under section 54F of the Income Tax Act, 1961. The Assessing Officer (AO) noticed that the assessee did not deposit the entire capital gains into a specified capital gains account scheme before the due date for filing the return under section 139(1). Consequently, the AO allowed the exemption only to the extent of the amount paid to the builder before the due date for filing the return. The Commissioner of Income Tax (Appeals) [CIT(A)] further allowed additional deductions for amounts paid up to the date of filing the return under section 139(4).

The Tribunal reviewed the decisions of various benches, including the co-ordinate Bench in the case of Madhuvan Prasad Vs. ITO, which held that non-depositing of sale proceeds into a capital gains account scheme is a technical fault and should not deny the exemption if the ultimate purpose of section 54F is achieved. The Tribunal also referenced the Mumbai Bench's decision in Kishore H. Galaiya Vs. ITO, which stated that the exemption should not be denied due to technical defaults if the funds were used for the construction of a residential house within the stipulated period.

The Tribunal concluded that the assessee's failure to deposit the sale proceeds into the capital gains account scheme should not deny the exemption under section 54F, as the funds were utilized for the intended purpose of constructing a residential property. The Tribunal directed the AO to allow the claim of the assessee and recompute the capital gains in accordance with the law, considering the above decisions.

2. Disregarding the Expenditure Incurred on Improvement for Computing Capital Gains:

The assessee claimed an indexed cost of acquisition, including a substantial amount towards the cost of improvement. The AO disallowed the cost of improvement due to a lack of evidence. The CIT(A) also rejected the claim, citing discrepancies in the dates of the bills provided by the assessee.

The Tribunal noted the assessee's submission that the improvements included filling low-lying areas, erecting a solid iron gate, constructing a compound wall, digging a well, and constructing a shed. The assessee provided contractors' certificates and bills for these improvements, which were not found to be non-genuine by the AO but were disallowed due to non-production at the assessment stage.

The Tribunal remanded the issue back to the AO to re-examine the bills and decide the issue in accordance with the law, ensuring that the cost of improvement is considered appropriately.

Conclusion:

The Tribunal allowed the appeal of the assessee partly for statistical purposes, directing the AO to re-evaluate the claims under section 54F and the cost of improvement, providing adequate opportunities to the assessee to present evidence and arguments. The Tribunal emphasized a liberal and purposive interpretation of section 54F to ensure the benefits intended by the provision are conferred.