2019 (5) TMI 403 - AT - Income Tax

Disallowance of exemption u/s. 54 - investment towards the purchase of the new residential property under consideration upto the date of filing of his revised return of income u/s 139(5) - outer limit for the purchase or construction of the new asset as per sub-section (2) of Sec. 54 is the date of furnishing of the return of income u/s.139 - HELD THAT - On a plain and literal interpretation of the aforesaid statutory provision, it can safely be gathered that the conscious, purposive and intentional providing by the legislature of date of furnishing the return of income under Sec.139 cannot be substituted and narrowed down to Sec.139(1). In our considered view the date of furnishing of the return of income u/s 139 would safely encompass within its sweep the time limit provided for filing of the return of income by the assessee u/s 139(4) as well as the revised return filed by him u/s 139(5). Assessee in the case before us was entitled to claim exemption u/s. 54 to the extent he had invested towards the purchase of the new residential property under consideration upto the date of filing of his revised return of income u/s. 139(5) i.e. on 15.11.2014. As is discernible from the records, as the assessee had invested an amount of ₹ 2,49,94,008/- towards the purchase of the property under consideration up to 15.11.2014, i.e. the date of filing of the revised return of income u/s. 139(5) which we find is much in excess of LTCG of ₹ 1,44,51,461/- (after indexing) that had arisen on the sale of the aforementioned old residential flat, therefore, no part of the LTCG as rightly claimed by the assessee was liable to be brought to tax during the year under consideration. We thus in terms of our aforesaid observations set aside the order of the CIT(A) and vacate the disallowance of the assesses claim of exemption u/s. 54.

Issues Involved:

1. Validity of the order passed under Section 144 of the Income Tax Act.
2. Partial denial of exemption under Section 54 of the Income Tax Act.
3. Chargeability of interest under Section 234B.
4. Initiation of penalty proceedings under Section 271(1)(c).

Issue 1: Validity of the Order Passed Under Section 144

The assessee contended that the order passed under Section 144 of the Income Tax Act was bad in law and void ab initio due to the lack of a show cause notice and adequate opportunity for hearing. The Tribunal noted that the Assessing Officer (AO) had not issued a show cause notice or provided an adequate opportunity for the assessee to explain the return of income. Consequently, the Tribunal found that the AO's observations were factually incorrect, thus rendering the order under Section 144 invalid.

Issue 2: Partial Denial of Exemption Under Section 54

The assessee claimed exemption under Section 54 for the entire long-term capital gains (LTCG) arising from the sale of an old residential flat by investing in a new residential property. The AO denied the exemption, stating that the assessee had not substantiated the claim and had failed to invest the LTCG amount in the new property or deposit it in a Capital Gain Account Scheme (CGAS) as required by Section 54(2). The CIT(A) partially upheld the AO's decision, allowing exemption only for the amount invested by the due date of filing the return under Section 139(1).

The Tribunal, however, held that the outer limit for the purchase or construction of a new asset under Section 54(2) is the date of furnishing the return of income under Section 139, which includes the extended period under Section 139(4) and the revised return under Section 139(5). The Tribunal concluded that the assessee had invested an amount exceeding the LTCG in the new property by the date of filing the revised return under Section 139(5). Therefore, the assessee was entitled to the full exemption under Section 54, and the disallowance of ?60,79,680 was vacated.

Issue 3: Chargeability of Interest Under Section 234B

The CIT(A) confirmed the chargeability of interest under Section 234B. The Tribunal did not provide a separate detailed analysis for this issue, implying that it was contingent on the resolution of the primary issue concerning the exemption under Section 54. Since the Tribunal allowed the full exemption, the consequential chargeability of interest under Section 234B would also be impacted accordingly.

Issue 4: Initiation of Penalty Proceedings Under Section 271(1)(c)

The CIT(A) confirmed the initiation of penalty proceedings under Section 271(1)(c). The Tribunal's decision to allow the full exemption under Section 54 and vacate the disallowance implies that the basis for the penalty under Section 271(1)(c) would be affected. However, the Tribunal did not explicitly address this issue in detail, suggesting that it would be reconsidered in light of the primary decision.

Conclusion:

The Tribunal allowed the appeal filed by the assessee, setting aside the order of the CIT(A) and vacating the disallowance of the exemption under Section 54. The order passed under Section 144 was deemed invalid, and the assessee was granted the full exemption for the LTCG invested in the new residential property. The consequential issues of interest under Section 234B and penalty under Section 271(1)(c) were implicitly resolved in favor of the assessee.

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