RAJAN GUNBA TELANG,MUMBAI vs. PR. CIT - 21 , MUMBAI

Brief facts are, the assessee, an individual, filed his return of income for the impugned assessment year on 17th July 2014, declaring total income of ` 32,07,210. Assessment in case of the assessee was completed under section 143(3) of the Act vide order dated 26th July 2016, accepting the income returned by the assessee. When the matter stood thus, learned Principal Commissioner called for the assessment records and after examining it found that during the year under consideration, the assessee had sold a residential flat on 9th February 2014, for declared sale consideration of ` 30 lakh. However, the stamp duty authority has determined the value of the property at ` 46,24,848, for the purpose of stamp duty valuation. He found that after claiming indexation benefit, the total long term capital gain of ` 30,08,473, accrued to the assessee. As against the long term capital gain arising at his hands, the assessee claimed deduction under section 54 of the Act on account of purchase of a new residential flat for an amount of ` 45,38,000. Referring to the provisions of section 54(1) of the Act, learned Principal Commissioner observed, for claiming deduction the assessee is required to purchase the new residential house within a period of one year before or two years after the date on which the transfer took place. He observed, if the assessee does not purchase the residential house within a period of one year prior to the date of transfer or has not utilized the capital gain in purchase of new house within the due date of filing of return of income

The learned Authorised Representative submitted, in course of assessment proceedings, the Assessing Officer had enquired into all the issues including assessee’s claim of deduction under section 54(1) of the Act. In this context, he drew our attention to the notice dated 9th June 2016, issued under section 142(1) of the Act. He submitted, in the said notice, the Assessing Officer had enquired about the purchase of residential house by the assessee. He submitted, in reply to the said notice, the assessee had furnished his reply on 15th June 2016, mentioning the details of payment made towards purchase of new house. He submitted, through e–mail dated 16th June 2016, the Assessing Officer had specifically enquired into the compliance with the conditions set out in section 54(2) of the Act. He submitted, in

The learned Authorised Representative submitted, since the decision of the Assessing Officer in allowing deduction under section 54 is in consonance with the ratio laid down in the decisions cited before him, it is a possible view, hence, cannot be considered as erroneous. The learned Authorised Representative submitted, merely because learned Principal Commissioner does not agree with the view expressed by the Assessing Officer or entertains a different view, the assessment order cannot be considered as erroneous and prejudicial to the interest of Revenue. In this context, he relied upon the following decisions:–

The learned Authorised Representative submitted, since the Assessing Officer has decided the issue as per the law prevailing at the time of making the assessment, it cannot be considered to be erroneous. He submitted, the decision of the Hon'ble Jurisdictional High Court in Humayun Suleman Merchant v/s CCIT, [2016] 387 ITR 421 (Bom.), is subsequent to the date of the assessment order. Therefore, by virtue of such decision of the Hon'ble Jurisdictional High Court the assessment order cannot be considered to be erroneous and prejudicial to the interest of Revenue. In support of such contention, he relied upon the decision of the Tribunal, Mumbai Bench, in Gajendra Kumar T. Agarwal v/s ITO, 11 ITR (Trib.) 640 (Mum.). Thus, he submitted, the order passed under section 263 of the Act should be set aside.

The learned Departmental Representative submitted, the Assessing Officer has failed to apply his mind to the relevant statutory provisions as well as the judicial precedents on the issue resulting in wrongful allowance of assessee’s claim of deduction 54(1) of the Act even though all the conditions of section 54 of the Act were not complied. The learned Departmental Representative submitted, the decision of the Hon'ble Jurisdictional High Court in Humayun Suleman Merchant (supra) clearly clinches the issue in favour of the Revenue. He submitted, though in various judicial precedents it has been held

We have considered rival submissions and perused material on record. We have also applied our mind to the decisions relied upon. As far as the basic facts are concerned, there is no dispute that the assessee had derived long term capital gain of ` 30,08,473, from sale of a residential flat. The long term capital gain has not been offered to tax by claiming deduction under section 54 of the Act towards investment in a new residential house. Admittedly, the assessee had filed his return of income for the impugned assessment year on 17th July 2014. Whereas, the payments towards purchase of new residential flat were made between 5th October 2015 and 15th February 2016. Thus, from the aforesaid facts, it is very much clear that before

In the facts of the present case, though, the assessee had filed his return of income within the due date provided under section 139(1) of the Act, however, by that time he has not utilized the capital gain in purchase of new property. Therefore, as per the provision of section

In Rajesh Kumar Jalan (supra), the Hon’ble Gauhati High Court has held that reading of section 54(2) of the Act would make it clear that it encompasses not only section 139(1) of the Act but section 139(4) and 139(5) of the Act as well. However, what the decision implies is, investment towards purchase of new house made before the actual date of filing of return of income even under section 139(4) of the Act would satisfy the condition of section 54(2) of the Act.

In case of Fathima Bai (supra), it is very much clear that the assessee did not file any return of income within the due date provided under section 139(1) of the Act. In response to notice issued under section 148 of the Act, the assessee filed its return of income only on 27th February 2000. Whereas, the due date of filing of return of income under section 139(1) of the Act was 30th July 1988. However, from the facts of the said decision, it becomes very much clear that by the actual date of filing of return of income within the extended period provided under section 139(4) of the Act, the assessee had invested the unutilized capital gain in purchase of new flat.

In the case of Jagruti Agarwal (supra), the facts are more or less similar. Though, the due date of filing of return of income as per section 139(1) of the Act was 31st July 2006, however, the assessee had filed her return of income on 28th March 2007 under section 139(4) of the Act. Since, the unutilized capital gain was invested in purchase of new property by the actual date of filing of return of income by the assessee under section 139(4) of the Act, claim of deduction under section 54 of the Act was allowed,.

In Humayun Suleman Merchant (supra), the Hon'ble Jurisdictional High Court, after taking note of the decisions of Hon’ble Gauhati High Court and Hon’ble Karnataka High Court cited supra, has held that for claiming exemption under section 54F of the Act, the capital gain on sale of capital asset has to be utilized before the actual date of filing of return of income for the subject assessment year. Therefore, the legal principle emeging from the aforesaid decisions, and more particularly from the decision of the Hon'ble Jurisdictional High Court in Humayun Suleman Merchant (supra), is to the effect that if the assessee utilizes the capital gain in purchase of a new house property before the actual date of filing of return of income for the subject assessment year even within the extended time limit allowed under sub sections (4) and (5) of section 139 of the Act, the conditions of section 54(2) of the Act would stand satisfied and assessee’s claim

If we apply the aforesaid legal principle to the facts of the present case, it can be seen that till the actual date of filing of return of income by the assessee for the impugned assessment year, the capital gain had not been utilized for purchase of new residential house. That being the case, the assessee was required to deposit the unutilized capital gain in capital gain account scheme within the due date of filing of return of income under section 139(1) of the Act. Thus, prima facie, the conditions of section 54(2) of the Act have not been complied. No doubt, during the assessment proceedings, the Assessing Officer enquired into the claim of deduction under section 54(1) of the Act and did raise a query regarding compliance with the conditions of section 54(2) of the Act. It is also a fact that the assessee had submitted his reply in response to the query raised by the Assessing Officer. However, while allowing assessee’s claim of deduction under section 54(1) of the Act, the Assessing Officer has not properly applied the statutory provision as contained under section 54 of the Act. That being the case, the decision of the Assessing Officer in allowing assessee’s claim of deduction under section 54(1) of the Act,

The contention of the learned Authorised Representative that the Assessing Officer’s decision in allowing deduction under section 54(1) of the Act is as per the legal position prevailing on the date of passing of the assessment order, in our view, is unacceptable. As discussed earlier, the ratio laid down in the decisions referred to above do not lead to the conclusion that the assessee is not required to deposit the unutilized capital gain in capital gain account scheme if it is utilized in purchase of new residential house within the time allowed under section 139(4) of the Act, irrespective of the actual date of filing of return of income by the assessee for the subject assessment year. On the contrary, the legal proposition which follows from the aforesaid decisions is, though, the provision of section 54(2) of the Act encompasses due date of filing of return of income not only as per section 139(1) but even section 139(4) and 139(5) of the Act, however, the condition of section 54(2) of the Act would stand satisfied if the assessee invests the unutilized capital gain in purchase of new house property before the actual date of filing of return of income for the subject assessment year even within the extended time permitted under section 139(4) and 139(5) of the Act. That being the case, it cannot be said that the decision of the Assessing Officer is in

In the result, assessee’s appeal stands dismissed. Order pronounced in the open Court on 25.09.2019