2023 (8) TMI 435 - AT - Income Tax

Deduction/ exemption u/s 54 of the capital gain earned denied - year of assessment - HELD THAT - Since the capital gain has been held to be not taxable in the impugned year, the eligibility to claim of exemption of the same, we hold, is to be examined in the year to which the capital gain pertains. Therefore, in the eventuality that the departments subjects the capital gains to tax in the preceding assessment year i.e. Asst. Year 2012-13, the assessee s claim of exemption under section 54 is to be examined afresh in the said year.

Summary

Issues involved:
The issues involved in this case include the recall of a dismissed appeal by the Tribunal, determination of capital gain tax liability in a specific assessment year, denial of exemption under section 54 of the Income Tax Act, charging of interest under sections 234B and 234D, and initiation of penalty proceedings under section 271(1)(c) of the Act.

Recall of Dismissed Appeal:
The Tribunal initially dismissed the appeal of the assessee for default. Subsequently, the assessee filed a Misc. Application seeking recall of the order due to valid reasons for non-attendance. The Tribunal, after considering the application, recalled its ex parte order and allowed for a fresh adjudication of the appeal.

Capital Gain Tax Liability:
The assessee had shown capital gain from the sale of a residential property in the return of income. The Assessing Officer noted that the property was sold in the preceding year, not the impugned year. The AO held that the capital gain was not taxable in the impugned year and also denied the claim of deduction under section 54 of the Act. The CIT(A) confirmed these findings, leading to an appeal by the assessee against the tax liability determination.

Exemption under Section 54:
The assessee claimed exemption under section 54 and 54EC of the Act, resulting in a NIL capital gain. However, the AO held that the conditions for claiming exemption under section 54 were not satisfied. The CIT(A) also upheld this decision, leading to the assessee challenging this denial before the Tribunal.

Interest and Penalty Proceedings:
The Assessing Officer charged interest under sections 234B and 234D of the Act. Additionally, penalty proceedings under section 271(1)(c) were initiated by the AO. The assessee raised concerns regarding these actions in the appeal before the Tribunal.

Decision and Disposal of Grounds:
The Tribunal did not consider certain grounds raised by the assessee regarding the property transfer and possession. The main issue was the denial of exemption under section 54 due to the non-taxability of capital gains in the impugned year. The Tribunal held that if the capital gains are taxed in the preceding year, the claim of exemption under section 54 should be re-examined in that year. Consequently, the appeal of the assessee was allowed based on these considerations.

Conclusion:
In conclusion, the Tribunal allowed the appeal of the assessee concerning the denial of exemption under section 54, emphasizing the need for a fresh examination of the claim in the year to which the capital gains pertain. The decision was pronounced in the Court on 5th July 2023 at Ahmedabad.