2024 (7) TMI 784 - AT - Income Tax

Exemption u/s 54F - computed the short term capital gain and thus, did not grant exemption u/s 54/ 54F - HELD THAT - Here the claim of the assessee is that even if the capital gain is re-characterised by virtue of the deeming fiction as short-term capital gain but still the asset remains a long-term capital asset. Therefore, this decision does not prevent the assessee from claiming exemption u/s 54F of the act if the relevant conditions of that section are satisfied. No doubt, the assessee is precluded in making the about them without making any claim in the return of income or revised return of income before the assessing officer however the appellate authorities are not barred from considering the claim of the assessee. This is so because of the reason that decision in case of Goetze India limited 2006 (3) TMI 75 - SUPREME COURT restricts the power of the AO but not the power of appellate authorities. Therefore, CIT- A should have granted the claim of the assessee u/s 54F of the act. Accordingly we restore the whole issue back to the file of AO to compute the income of the assessee considering the provisions of section 41 (2) of the act and section 50C of the act, and thereafter from the capital gain, allow the claim of the assessee under section 54F of the act, if the other conditions are satisfied. Appeal of the assessee are restored back to the file of the learned AO to give the fact accordingly.

Issues Involved:

1. Confirmation of assessment order determining total income.
2. Disallowance of exemption claim under Section 54F of the Income-tax Act, 1961.
3. Powers of appellate authorities to entertain additional claims not made in the original return.
4. Nature of asset and eligibility for exemption under Section 54F.
5. Applicability of Section 50 and Section 41(2) of the Income-tax Act, 1961.
6. Proportionate exemption and deposit in capital gain account scheme.

Issue-wise Detailed Analysis:

1. Confirmation of Assessment Order Determining Total Income:

The appellant contested the confirmation of the assessment order passed under Section 143(3) determining the total income at ?42,13,130/- against the returned income of ?1,84,310/-. The NFAC upheld the assessment order without appreciating the facts and circumstances of the case. The Tribunal noted that the assessment order was based on the computation of short-term capital gains and disallowance of the exemption claimed under Section 54F.

2. Disallowance of Exemption Claim under Section 54F of the Income-tax Act, 1961:

The appellant claimed exemption under Section 54F on the sale of an industrial property and investment in a residential property. The NFAC confirmed the AO's action of denying the exemption, relying on the decision in Goetze (India) Ltd. vs. CIT, which held that any claim not made in the original return cannot be entertained subsequently. The Tribunal found that the appellant had satisfied all conditions for the exemption under Section 54F, but the claim was disallowed as it was not made in the original return.

3. Powers of Appellate Authorities to Entertain Additional Claims Not Made in the Original Return:

The appellant argued that appellate authorities have the power to entertain additional claims not made in the original return, supported by the Bombay High Court's decision in CIT vs. Pruthvi Brokers & Shareholders. The Tribunal agreed, stating that while the AO is restricted from entertaining new claims not made in the original return, appellate authorities are not so restricted. Thus, the NFAC should have considered the appellant's claim under Section 54F.

4. Nature of Asset and Eligibility for Exemption under Section 54F:

The appellant contended that the industrial property sold was a long-term capital asset, held for more than 36 months, and thus eligible for exemption under Section 54F. The NFAC and AO treated the gain as short-term due to the depreciation claimed, invoking Section 50 of the Act. The Tribunal noted that while Section 50 deems the gain from depreciable assets as short-term, the asset itself remains a long-term capital asset. Hence, the appellant is entitled to claim exemption under Section 54F.

5. Applicability of Section 50 and Section 41(2) of the Income-tax Act, 1961:

The Tribunal examined the applicability of Sections 50 and 41(2). Section 50 deems the gain from the sale of depreciable assets as short-term capital gain, while Section 41(2) charges the excess of sale price over the written-down value as business income. The Tribunal held that the AO correctly computed the short-term capital gain but failed to allow the exemption under Section 54F, which the appellant was entitled to, as the asset was a long-term capital asset.

6. Proportionate Exemption and Deposit in Capital Gain Account Scheme:

The AO alternatively held that only a proportionate exemption was allowable as the appellant did not deposit the entire sale consideration in the capital gain account scheme. The Tribunal directed the AO to recompute the income, considering the provisions of Sections 41(2) and 50, and allow the exemption under Section 54F proportionately if other conditions are satisfied.

Conclusion:

The Tribunal restored the issue to the AO for recomputation of income, allowing the exemption under Section 54F if conditions are met. The appeal was partly allowed for statistical purposes. The general ground was dismissed as it was general in nature. The order was pronounced on 12.07.2024.

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