2023 (2) TMI 154 - AT - Income Tax

Exemption u/s 54 - Proportionate deduction towards amount invested for purchase of new house property u/s. 54 - HELD THAT - In this case, facts with regard to non-compliance of provisions of Sec. 54(2) of the Act, are not in dispute. Assessee neither utilized full amount of capital gains for purchase or construction of house property before filing return of income u/s. 139(1) nor deposited unutilized amount in 'Capital Gain Account Scheme'. Therefore, we are of the considered view that the AO has rightly allowed proportionate deduction towards amount invested for purchase of new house property u/s. 54 of the Act. In this case, the assessee could not furnish any evidences with regard to completion of construction of house within three years from the date of sale of original asset and also any other evidences to prove that amount has been spent for construction of house property, except filing a statement referring certain payments to M/s. Keshthana Infrastructure Pvt. Ltd., and claimed that said payments are for construction of house property. Therefore, we are of the considered view that the assessee has failed to satisfy conditions prescribed u/s. 54 of the Act, for claiming benefit of exemption u/s. 54 for remaining amount and thus, we are of the considered view that there is no error in the reasons given by the AO and the CIT(A) to reject the benefit of exemption for balance amount and thus, we are inclined to uphold the findings of the CIT(A) and dismiss the appeal filed by the assessee.

Issues Involved:
1. Sustenance of re-computation of long-term capital gains.
2. Restriction of the claim for tax exemption under Section 54.
3. Misconstruction of Section 54(2) and its implications.
4. Judicial trend and precedents overlooked.
5. Proper opportunity and principles of natural justice.

Detailed Analysis:

1. Sustenance of Re-computation of Long-Term Capital Gains:
The assessee contested the partial sustenance of the re-computation of long-term capital gains by the Commissioner of Income Tax (Appeals) [CIT(A)], arguing it was done without proper reasons and justification. The Assessing Officer (AO) re-computed the long-term capital gains and limited the exemption under Section 54 to Rs. 48,59,420/- instead of the claimed Rs. 90 lakhs, as the full amount derived from the sale was not utilized for acquiring a new asset.

2. Restriction of the Claim for Tax Exemption under Section 54:
The assessee argued that the CIT(A) failed to appreciate that the entire capital gains were utilized within three years for the construction of a house property, despite not depositing the unutilized portion in the 'Capital Gain Account Scheme' as required by Section 54(2). The AO's denial of full exemption was based on the non-compliance with the deposit requirement before the due date for filing the return.

3. Misconstruction of Section 54(2) and Its Implications:
The assessee contended that the misconstruction of Section 54(2) by the CIT(A) defeated the purpose of the statutory provisions intended to grant tax exemption for the creation of a new asset. The CIT(A) upheld the AO's decision, emphasizing that the statutory language was clear and unambiguous, requiring strict compliance with the deposit requirement for unutilized capital gains.

4. Judicial Trend and Precedents Overlooked:
The assessee claimed that the CIT(A) overlooked judicial precedents, including decisions favoring the taxpayer by the Jurisdictional Bench of the Income Tax Appellate Tribunal (ITAT). The CIT(A) relied on the Supreme Court's decision in Smt. Tarulata Shyam and Others v. CIT West Bengal, which emphasized strict interpretation of clear statutory language without importing words not present in the statute.

5. Proper Opportunity and Principles of Natural Justice:
The assessee argued that there was no proper opportunity given before passing the impugned order, and any order passed in violation of the principles of natural justice would be nullity in law. The CIT(A) did not address this issue explicitly in the judgment.

Conclusion:
The ITAT upheld the CIT(A)'s decision, emphasizing that the statutory provisions of Section 54(2) were clear and required the unutilized amount of capital gains to be deposited in the 'Capital Gain Account Scheme' before the due date for filing the return. The ITAT found no error in the AO's and CIT(A)'s reasoning and dismissed the appeal, concluding that the assessee failed to comply with the specific provisions of Section 54(2) and did not furnish evidence of utilizing the full amount of capital gains for constructing a house within the stipulated period.

Order Pronouncement:
The appeal filed by the assessee was dismissed, and the order was pronounced on the 11th day of January, 2023, in Chennai.

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