2016 (5) TMI 1090 - AT - Income Tax

Entitlement to exemption under Section 54E - Held that - The capital gain computed by the assessee to the extent of Rs. 36, 68, 051/- on sale of 75% of his right in the immovable property was claimed exemption under Section 54E of the Act. The Assessing Officer found that what was deposited in IDBI bonds is only Rs. 15, 00, 000/-. Accordingly he computed the exemption proportionately. It is obvious from the provisions of the Act that the assessee has to necessarily invest either in the capital asset or Capital Gains Bond as prescribed under Section 54E of the Act. For claiming exemption the assessee has invested only Rs. 15, 00, 000/-. Therefore the assessee is entitled for exemption proportionately. Accordingly the CIT(Appeals) has rightly allowed the exemption proportionately. This Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed Computation of capital gains - Held that - This Tribunal found that after the consideration received by the assessee what was deposited in IDBI bonds within the prescribed time is only Rs. 15, 00, 000/-. Therefore the Tribunal upholds the order of the Assessing Officer which proportionately allowed exemption under Section 54E of the Act. In this appeal the CIT(Appeals) has further allowed 60% under Section 48(2) of the Act. The 60% might have been allowed for improvement etc. made by the assessee to the property. Ultimately the capital gains chargeable to tax was computed at Rs. 6, 89, 421/-. Therefore this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed.

Summary

Issues:
1. Taxation of interest on IDBI bonds received in advance.
2. Exemption under Section 54E of the Act for capital asset transfer.
3. Computation of capital gains.

Analysis:

Issue 1: Taxation of interest on IDBI bonds received in advance
- The Revenue contended that the assessee received the entire interest on IDBI bonds during the assessment year but offered only a proportionate amount for taxation.
- The Assessing Officer reopened the assessment, but the CIT(Appeals) deleted the addition, stating that the interest was received in advance and did not constitute income for the year.
- The assessee argued that the interest should be assessed in the year the right to receive it arises.
- The Tribunal held that the advance interest received, spread over 36 months, did not constitute income as the assessee had no right to retain it.
- Consequently, the Tribunal upheld the CIT(Appeals) decision to delete the addition, rendering the question of reopening the assessment unnecessary.

Issue 2: Exemption under Section 54E of the Act for capital asset transfer
- The assessee transferred a capital asset and claimed exemption under Section 54E of the Act.
- The Assessing Officer disallowed the claim as the amount deposited in IDBI bonds was less than the total consideration.
- The CIT(Appeals) restricted the exemption claim under Section 48(2) of the Act.
- The Revenue argued that the exemption should be limited to the amount invested in IDBI bonds.
- The Tribunal upheld the proportionate exemption based on the actual investment made by the assessee, in line with the provisions of the Act.

Issue 3: Computation of capital gains
- Discrepancies arose in the computation of capital gains, leading to differing assessments by the Assessing Officer and the CIT(Appeals).
- The CIT(Appeals) adjusted the exemption and chargeable capital gains based on the actual investment in IDBI bonds and other factors.
- The Revenue contended that the original cost of the asset should have been considered.
- The Tribunal upheld the lower authorities' decisions, confirming the computation of capital gains at a specific amount.
- Ultimately, all appeals by both the Revenue and the assessee were dismissed, with the Tribunal affirming the lower authorities' orders.

This detailed analysis of the judgment addresses the key issues involved in the case, providing a comprehensive overview of the arguments presented by both parties and the Tribunal's reasoning for the final decision.