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Facts
The assessee filed his return of income and claimed exemption under Section 54 of the Income Tax Act for long-term capital gains. The Assessing Officer (AO) added back Rs. 16,75,288/- to the income as the capital gains were not utilized for purchasing new assets or deposited in the Capital Gains Account Scheme within the due date.
Held
The Tribunal held that the substantive provision of Section 54(1) of the Act aims to promote housing and that the assessee had indeed invested the capital gains in a new residential property within the stipulated period. Therefore, the procedural lapse of not depositing the amount in the Capital Gains Account Scheme should not deny the benefit of exemption.
Key Issues
Whether the benefit of exemption under Section 54/54F of the Income Tax Act can be denied due to a procedural lapse of not depositing capital gains in the designated account, despite investment in a new property?
Sections Cited
54, 143(2), 143(3), 45, 80E, 271(1)(c), 139(1), 139(4), 54F
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Income Tax Appellate Tribunal, SMC BENCH, LUCKNOW
Before: SHRI. SUDHANSHU SRIVASTAVA
Assessment Year: 2012-13 Shri Kinghshuk Ghoshal v. The ITO 6(5) E-402, Halwasiya Utsav Enclave Lucknow Opposite HAL, Faizabad Road Lucknow TAN/PAN:AFFPG3258L (Appellant) (Respondent) Appellant by: Shri P. K. Kapoor, C.A. Respondent by: Shri Sunil Kumar Rajwanshi, D.R. O R D E R This appeal has been preferred by the Assessee against order dated 26.12.2017, passed by the Learned Commissioner of Income Tax (Appeal), Lucknow-3 (ld. CIT(A)) for Assessment Year 2012-13.
2.0 The brief facts of the case are that the assessee filed his return of income for the year under consideration on 29.11.2012, declaring a total income of Rs.1,05,233/-. The case of the assessee was selected for scrutiny under CASS. During the course of assessment proceedings, the Assessing Officer (AO) noticed that the assessee was earning interest income from Saving Bank deposits and FDRs and that the assessee had claimed exemption of Rs.71,54,619/- under section 54 of the Income Tax Act, 1961 (hereinafter called “the Act’). During the Page 2 of 13 course of assessment proceedings, from the documents furnished by the assessee, the AO noticed that the assessee had purchased a flat W2B-114 on 11th Floor at Gurgaon on 27.01.2004 for Rs.28,45,381/- (total indexed cost including Stamp duty and other expenses) and had sold the same on 28.07.2011 for a consideration of Rs.1,00,00,000/-, resulting into a Long Term Capital Gain of Rs.71,54,619/-, and that, thereafter, he had purchased a flat in URBANA at 783, Anandpur, Kolkata for a consideration of Rs.54,79,331/-. The AO noted that the assessee had not utilized the Capital Gain of Rs.16,75,288/- (Rs.71,54,619 (-) Rs.54,79,331) and the same was added to the income of the assessee under section 45 of the Act.
2.1 Further, from the computation of income, the AO noticed that the assessee had earned interest on FDRs and Saving Bank account maintained with SBI Patiala, Branch Gurgaon, to the tune of Rs.2,42,339/-. Since the Bank account was held jointly with his wife, Smt. Nandini Ghoshal, 50% of the interest income, which came to Rs.1,37,106/-, was also added to the income of the assessee. During the course of assessment proceedings, it was submitted before the AO that the assessee had taken an educational loan of Rs.14,16,864/- on 25.11.2005, on which interest of Rs.22,221/- was paid and, therefore, deduction under section 80E of the Act was to be allowed for the same. The AO, conceding to the request made on behalf of the assessee, allowed deduction of Rs.22,221/- under section 80E of the Act. The AO completed the assessment under section 143(3) of the Act, computing the income of the assessee as under:
Income as per Return : Rs.1,05,233/- Addition on a/c. of Long Term Capital Gain : Rs.16,75,288/- Addition of interest income : Rs.1,37,106/- Gross total income : Rs.19,17,627/- Deduction u/s. 80E of the Act : Rs.22,221/- Net Taxable Income (rounded off) : Rs.18,95,410/- 2.2 The AO also initiated penalty proceedings under section 271(1)(c) of the Act, separately.
3.0 Aggrieved, the Assessee preferred an appeal before the ld. CIT(A), challenging the addition of Rs.16,75,288/- made by the AO on account of Long Term Capital Gain. However, the appeal of the assessee was dismissed by the ld. CIT(A) by confirming the addition of Rs.16,75,288/- on the ground that the assessee had not deposited this remaining amount in the Capital Gains Account Scheme before the due date of filing of return.
4.0 Now, the assessee has approached this Tribunal challenging the order of the ld. CIT(A) by raising the following grounds of appeal:
BECAUSE notice under section 143(2) of the "Act" not having been issued as per provisions contained in clause (ii) of sub-section (2) of section 143 of the "Act", the entire assessment proceedings got wholly vitiated and consequently the assessment order passed there under is rendered as nullity.
BECAUSE selection of case for scrutiny is the sole prerogative of the "Assessing Officer" himself and in the present case notice under section 143(2) issued on the basis of selection of case through CASS methodology has vitiated the whole assessment proceedings and as such the impugned assessment order is to be held as null and void. WITHOUT PREJUDICE TO THE AFORESAID 3. BECAUSE the "CIT(A)" has erred in law and on facts in upholding the addition of Rs. 16,75,288/- on the ground that the said amount was neither utilized for the purchase or the construction of new assets nor deposited in the Capital Gains Account. 4. BECAUSE on the facts and in the circumstances of the case, the contention of the "appellant" that he did not deposit the un-utilised capital gain in the Capital Gain's Accounts, as he was not aware of the legal provision in that regard was duly supported by the decision of Apex Court in the case of Motilal Padam Pat Sugar Co. Ltd., vs. State of U.P., 118 ITR 326 (SC), and the Id "CIT(A)" has completely mis-read the ratio of the said decision while upholding the addition. 5. BECAUSE looking to the facts and circumstances of the case and the material and information placed on record of the lower authorities, it deserves to be held that non depositing of un-utilised capital gain of Rs.16,75,288/- was due to ignorance on the part of the "appellant" and as such the claim of deduction under section 54 deserves to be allowed on the said amount too.
BECAUSE without prejudice to the aforesaid grounds, the un-utilised amount of capital gain was held by the "appellant" in his savings bank account in bank, and was not diverted for any other purpose and subsequently, the same having been invested in payment of installments for Apartment No. 2605 in 'Urbana' situated at 783, Anandpur, Kolkata within the time limit permitted in section 54, the claim of deduction deserves to be allowed.
BECAUSE in any case the assessee had subsequently invested more than Rs.16,75,288/ in payment of Apartment under construction (residential house) within the time limit allowed u/s 139(4) of the Act and consequently the claim of deduction did not get deleted merely on the ground that amount was not deposited in Capital Gains Account within the time limit u/s 139(1).
BECAUSE various case laws relied upon by the "appellant" was fully supported the case of the "appellant" and the "CIT(A)" was not correct in holding that the case laws cited by the "appellant" were distinguishable from the facts of the case and on that basis in up-holding the addition of Rs.16,75,288/-.
BECAUSE the authorities below failed to appreciate that benevolent provisions are to be interpreted liberally and on a due consideration of various expression by various judicial authorities, the claim of deduction under section 54 deserves to be allowed even to the sum of Rs.16,75,288/-.
BECAUSE the order appealed against is contrary to the facts, law and principles of natural justice. 5.0 The Ld. Authorized Representative for the assessee (Ld. A.R.) submitted that the only issue in dispute before this Tribunal was the denial of benefit of section 54F of the Act to the tune of Rs.16,75,288/- being alleged unutilized capital gain on the ground that the aforesaid amount was neither utilized for the purchase or construction of new assets nor deposited in the Capital Gains Account Scheme. The Ld. A.R. submitted that the due date for filing return for the captioned assessment year was 31.07.2012 and the return was filed on 29.11.2012 and, accordingly, the AO was of the opinion that as per provisions contained in sub-section (2) of section 54 of the Act, since the assessee had not deposited the unutilized amount of capital gain in the Capital Gains Account Scheme before the due date of filing the return of income under section 139 of the Act, the benefit of section 54F of the Act would not be available to the assessee. The Ld. A.R. also drew my attention to the statement of funds utilized from sale of property, which is placed at pages 25 and 26 of the paper book and submitted that the assessee had sold flat at Gurgaon on 28.07.2011 and had booked an apartment in Kolkata on 22.11.2011. It was also demonstrated from the above said chart that the final sale consideration of Rs.1 crore towards sale of flat was received on 28.07.2011 and by 12.06.2012, the Page 7 of 13 assessee had paid Rs.54,79,330/- towards booking and part payment of apartment at Kolkata. It was further submitted that the balance amount outstanding towards purchase of flat was paid between the period 20.07.2012 and 16.12.2014. It was submitted that, thus, more than 50% of the amount had been paid towards purchase of new property after the sale of old property before the due date for filing of return under section 139(1) of the Act. The Ld. A.R. also drew my attention to two Circulars issued by the C.B.D.T., viz. Circular No.471 dated 15.10.1986 and Circular No. 672 dated 16.12.1993, which was a further clarification to the earlier Circular No.471 dated 15.10.1986. While referring to the said Circulars, the Ld. A.R. submitted that as per this Circular, acquisition of a flat by an allottee under the Self-Financing Scheme of the D.D.A would amount to purchase or construction by the D.D.A on behalf of the allottee. It was submitted that as per this Circular, for the purpose of capital gain tax, the cost of new asset is the tentative cost of construction and the fact that the amount was allowed to be paid in installments does not affect the legal position and that in the cases of allotment of flats under the Self-Financing Scheme of D.D.A, they shall be treated as cases of construction for the purpose of capital gains. It was further submitted that Circular No.672 dated 16.12.1993 further clarified that if the Page 8 of 13 terms of the schemes of allotments and construction of flats /houses by the Co-operative Societies or other institutions are similar to those mentioned in paragraph 2 of Circular No.471 dated 15.10.1986, such cases may also be treated as cases of construction for the purposes of sections 54 and 54F of the Act. The Ld. A.R. submitted that, therefore, in view of the above two Circulars, even though the assessee had failed to deposit the money in the Capital Gains Account Scheme on or before due date, the benefit of exemption under section 54F of the Act should not be denied to the assessee, because section 54F of the Act was a beneficial provision and the Hon'ble Courts have time and again held that such provision has to be construed in a liberal manner for the simple reason that tax payers should be encouraged for either purchasing or for constructing new residential property. The Ld. A.R. also placed reliance on numerous judicial precedents of the various Benches of the Tribunal as well as of the various Hon'ble High Courts on the issue, which have been filed in the paper book and pleaded that the assessee’s appeal be allowed.
6.0 Per contra, the Ld. Sr. D.R., while referring to paragraph 8 of the order of the Ld. First Appellate Authority, submitted that the assessee himself had accepted during the course of first appellate proceedings that he had committed a fault by not Page 9 of 13 depositing the balance amount in the Capital Gains Account Scheme. It was submitted that this very acceptance was admittance and acceptance before the Ld. First Appellate Authority and, therefore, the assessee should not be permitted to raise this ground again before the Tribunal. The Ld. Sr. D.R. placed extensive reliance on the observations of the Ld. First Appellate Authority and submitted that the appeal of the assessee be dismissed.
7.0 I have heard the rival submissions and have also perused the material on record. I find that the contention of the Assessing Officer in the assessment order was that the assessee had not utilized the capital gain of Rs.16,75,288/- out of the capital gain earned of Rs.71,54,619/- for purchase/construction of new house property or deposited the capital gain amount in specified Capital Gains Account Scheme on or before the due date of filing of return under section 139(1) of the Act. The Ld. A.R. stated that the assessee had booked and apartment in Kolkata and paid Rs.54,79,330/- towards booking and part payment and balance amount outstanding towards purchase of flat being Rs.51,46,807/- was paid between 20.07.2012 and 16.12.2014. The Ld. A.R. submitted that it was only a procedural lapse that the assessee did not deposit the amount in the specified Capital Gains Account Scheme. Records are clear Page 10 of 13 that the assessee had invested the amount in purchase of a new property. I also find that even CBDT Circular No.471 and 672 are in favour of the assessee. At this juncture, I observe that section 54 of the Act is enacted in order to promote purchase/construction of residential houses. Section 54(1) of the Act is a substantive provision. Section 54(2) of the Act is an enabling provision, which provides that assessee should deposit the amount earned from capital gain in a scheme framed in this respect by the Central Government till the amount is invested for purchase of residential house. The substantive provision on one hand promotes housing and in a way leads to assess the intention of the assessee and if the intention of the assessee is to purchase a new property and that is fulfilled by the facts on record, then the enabling provision of keeping the amount in a particular scheme whether that is fulfilled or not should not destroy the ultimate bona-fide intention of the assessee as enshrined in section 54(1) of the Act. The procedural and enabling provision of sub-section (2) of section 54 of the Act cannot be strictly construed to impose strict limitations on the assessee and any default thereof to deny him the benefit of exemption under the provision. In my considered view, the assessee, at the time of assessment itself, had already established that he had already started investing the capital gains on purchase of new residential house within the stipulated period. Therefore, the benefit under the substantive provisions of section 54(1) of the Act cannot be denied to the assessee. I further take guidance from the judgment of the Hon'ble Karnataka High Court in the case of CIT vs. Shri K Ramachandra Rao in wherein the Hon'ble High Court held that “As is clear from Sub Section (4) in the event of the assessee not investing the capital gains either in purchasing the residential house or in constructing a residential house within the period stipulated in Section 54F(1), if the assessee wants the benefit of Section 54F, then he should deposit the said capital gains in an account which is duly notified by the Central Government. In other words if he wants to claim exemption from payment of income tax by retaining the cash, then the said amount is to be invested in the said account. If the intention is not to retain cash but to invest in construction or any purchase of the property and if such investment is made within the period stipulated therein, then Section 54F(4) is not at all attracted and therefore the contention that the assessee has not deposited the amount in the Bank account as stipulated and therefore, he is not entitled to the benefit even though he has invested the money in construction is also not correct.” Therefore, what the Hon'ble High Court essentially held was that if the intention of the assessee was not to retain cash Page 12 of 13 but to invest in construction or purchase of property and if such investment is made within the stipulated period, then section 54F(4) of the Act is not attracted. At this juncture, it may be noted that the wordings of section 54(2) of the Act are almost identical to section 54F(4) of the Act. Now, in the given facts and circumstances of the case, I find that the assessee had proved investment of amount for purchase of house property and such investment was partly made and, therefore, the assessee can be said to have complied with the substantive provision as enshrined under section 54(1) of the Act. I am, therefore, of the considered view that that the Ld. First Appellate Authority was not justified in confirming the order of the AO denying grant of deduction to the tune of Rs.16,75,288/- to the assessee under section 54 of the Act. I, therefore, set aside the order of the Ld. First Appellate Authority and direct the AO to allow the benefit of section 54F of the Act as claimed by the assessee.