2018 (11) TMI 198 - AT - Income Tax

Claim of deduction u/s 54F - assets in question were commercial assets - assessee is a Doctor by profession and has earned income from Salaries, Profits and Gains of Business or Profession and Income from other Sources - Held that - We are of the considered view that the assessee will be entitled for deduction u/s. 54F on the capital gains arising on the sale of depreciable assets being commercial flats situated at unit no. 24-26, Pearl Center, Dadar, Mumbai computed in the manner laid down in Section 50 of the 1961 Act r.w.s. 48, 49 and 45 of the 1961 Act as these assets which were sold by the assessee during the year under consideration were held for a period of more than thirty six months, on the reinvestment made by the assessee in new residential property being flat at Beau Monde. Appellant sold commercial property which is held for more than 3 years and from the consideration received from sale of the property he purchased new property. Hence appellant is eligible for exemption u/s 54F of the Act. AO s addition of Short Term Capital Gain for ₹ 6.50 Crs. is deleted. - Decided in favour of assessee. Difference in the capital account balance of the assessee who is partner in partnership firm in the books of accounts of the assessee vis-a-vis balance of capital account of the assessee in the Balance Sheet of the partnership firm - Held that - The said partnership firm namely M/s. Pregnancy Advice & Services is also assessed to income-tax within Indian tax Jurisdiction and all the information/ data s of the said firm was already on record with Revenue in its data base as it filed its return of income on 12-03-2013 while assessment is framed on 30-03-2015 and Revenue could have easily cross verified and reconciled the said differential from its own data base to verify the veracity and validity of the contentions of the assessee more so Revenue is now well equipped with advanced technological platforms available at its disposal. Coming back to issue in hand, CIT(A) has passed well reasoned order granting relief to the assessee with which we fully concur which is re-produced by us in preceding para s of this order and the same is not reproduced again. We have carefully gone through the entire material on record as well appellate order passed by Ld. CIT(A) and we affirm/concur with the view of learned CIT(A) that differential in capital account balance of the assessee in its books of accounts vis-a-vis books of accounts of the partnership firm M/s. Pregnancy Advice & Services stood duly and fully explained and reconciled backed with bonafide reasons/evidences and we have no hesitation in confirming/affirming the well reasoned appellate order passed by learned CIT(A). The Revenue fails on this ground also.

Summary

Issues Involved:

1. Deduction under Section 54F of the Income Tax Act.
2. Addition under Section 69B of the Income Tax Act due to unexplained difference in capital account balance.

Issue-wise Detailed Analysis:

1. Deduction under Section 54F of the Income Tax Act:

The primary issue was whether the assessee was entitled to a deduction under Section 54F for reinvestment in a new residential flat with respect to capital gains arising from the sale of commercial properties used for his clinic, on which depreciation was claimed. The Assessing Officer (AO) disallowed the deduction, treating the gains as short-term capital gains under Section 50 of the Income Tax Act, which deals with depreciable assets. The AO held that Section 54F applies only to long-term capital gains.

The Commissioner of Income Tax (Appeals) [CIT(A)] allowed the deduction, holding that Section 50 is a deeming provision and its fiction cannot be extended to other sections like Section 54F. The CIT(A) cited various judicial precedents, including the Supreme Court's ruling in CIT v. V.S. Dempo Company Ltd., which clarified that the fiction created under Section 50 is confined to the computation of capital gains and does not affect the nature of the asset as a long-term capital asset for the purpose of claiming deductions under other sections.

The tribunal concurred with the CIT(A), citing multiple judgments, including those from the Bombay High Court and the Supreme Court, which supported the view that the deeming fiction of Section 50 should not extend beyond its intended purpose. The tribunal upheld the CIT(A)'s decision, allowing the deduction under Section 54F.

2. Addition under Section 69B of the Income Tax Act:

The second issue was the addition of ?1,89,97,538/- under Section 69B due to a discrepancy between the capital account balance of the assessee in the books of the partnership firm and his own books. The AO added this amount as unexplained investment.

The CIT(A) deleted the addition, accepting the assessee's explanation that the discrepancy arose because the partnership firm's accounts were finalized after the assessee had filed his return of income. The assessee's share of profit from the firm, which was exempt under Section 10(2A), was not included in his books for the relevant year but was accounted for in the subsequent year. The CIT(A) found this explanation reasonable and supported by documentary evidence.

The tribunal inspected the assessment records and confirmed that the assessee had indeed provided all relevant documents and explanations to the AO. The tribunal criticized the AO for selectively considering the assessee's replies and ignoring substantial evidence. It upheld the CIT(A)'s decision, agreeing that the discrepancy was satisfactorily explained and that the addition under Section 69B was unwarranted.

Conclusion:

The tribunal dismissed the Revenue's appeal on both substantive grounds. It upheld the CIT(A)'s decisions, allowing the deduction under Section 54F and deleting the addition under Section 69B, emphasizing the importance of considering all relevant evidence and judicial precedents in tax assessments.