2025 (4) TMI 472 - AT - Income Tax

Denial of deduction claimed u/s. 54F and 54B - assessee filed return belatedly u/s. 139(4) - HELD THAT - Identical issue has been discussed by the coordinate bench Mumbai in the case of Dr. Dharmista Mehta 2022 (10) TMI 544 - ITAT MUMBAI wherein held that the assessee in the case before us is entitled to claim exemption u/s 54 to the extent she had invested towards the purchase of new residential property under consideration upto the date of filing of belated return u/s 139(4).As assessee purchased new property well before the deadline given in section 139(4) which we find is much in excess of LTCG thus in terms of our aforesaid observations set-aside the order of the CIT(A) and vacate the disallowance of the assessee s claim of exemption under section 54 - Decided in favour of assessee.

ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment are:

Whether the delay of 292 days in filing the appeal by the assessee should be condoned.
Whether the disallowance of deductions claimed under sections 54F and 54B of the Income Tax Act, 1961, was justified.
Whether the registry charges should be included in the cost of acquisition for the purpose of calculating long-term capital gains.
Whether the interest charged under sections 234A and 234B of the Income Tax Act was appropriate.

ISSUE-WISE DETAILED ANALYSIS

1. Condonation of Delay

The relevant legal framework allows the Tribunal to condone delays in filing appeals if sufficient cause is shown. The Court considered the affidavits filed by the assessee and his new counsel, which explained that the delay was due to a communication gap and negligence by the previous counsel. The Court found the explanation satisfactory and condoned the delay, allowing the appeal to be heard on merits.

2. Disallowance of Deductions under Sections 54F and 54B

Legal Framework and Precedents: Sections 54F and 54B of the Income Tax Act provide for exemptions from capital gains tax if the proceeds from the sale of a long-term capital asset are reinvested in specified assets within a prescribed period. The issue revolved around whether the investments were made within the allowable time frame under section 139 of the Act.

Court's Interpretation and Reasoning: The Court relied on precedents, particularly the decision in the case of Dr. Dharmista Mehta, where it was held that the term "section 139" includes all subsections, not just 139(1). This interpretation allows for investments made before the filing of a belated return under section 139(4) to qualify for deductions.

Key Evidence and Findings: The assessee purchased properties for the purposes of sections 54F and 54B after the due date for filing the return but before filing a belated return under section 139(4). The funds were not deposited in the Capital Gains Account Scheme.

Application of Law to Facts: The Tribunal applied the broader interpretation of "section 139" to include section 139(4), thereby allowing the assessee's investments to qualify for deductions under sections 54F and 54B.

Treatment of Competing Arguments: The Tribunal considered the arguments from both sides, including the literal interpretation of section 54 by the Assessing Officer, but found the broader interpretation more consistent with judicial precedents.

Conclusions: The Tribunal set aside the disallowance of deductions under sections 54F and 54B, allowing the assessee's claims.

3. Inclusion of Registry Charges in Cost of Acquisition

Relevant Legal Framework: The cost of acquisition for the purpose of calculating capital gains includes expenses incurred wholly and exclusively in connection with the transfer.

Court's Interpretation and Reasoning: The Tribunal found that the registry charges should be included in the cost of acquisition as they are directly related to the purchase of the new asset.

Conclusions: The Tribunal allowed the inclusion of registry charges in the cost of acquisition.

4. Interest Charged under Sections 234A and 234B

Relevant Legal Framework: Sections 234A and 234B of the Income Tax Act deal with interest for defaults in furnishing return of income and for default in payment of advance tax, respectively.

Court's Interpretation and Reasoning: The Tribunal did not find sufficient grounds to waive the interest charged under these sections, as the statutory provisions for interest are mandatory in nature.

Conclusions: The Tribunal upheld the interest charged under sections 234A and 234B.

SIGNIFICANT HOLDINGS

The Tribunal held that the broader interpretation of "section 139" to include section 139(4) is applicable, allowing the assessee to claim deductions under sections 54F and 54B for investments made before filing a belated return. The Tribunal also allowed the inclusion of registry charges in the cost of acquisition but upheld the interest charged under sections 234A and 234B.

Verbatim Quotes: "The interpretation as discussed above seems plausible... the exemption needs to be allowed if the amount is invested on or before the due date of filing of return under section 139(4)." This establishes the principle that section 139 encompasses all its subsections for the purpose of claiming deductions.

Final Determinations on Each Issue