ANUBHAV KAPOOR,LUCKNOW vs. INCOME TAX OFFICER - 2(1)(1), GHAZIABAD

(i) Large deduction claim u/s 54B, 54C, 54D, 54G, 54GA (schedule CG of ITR) 3.1. The AO noted that during the year under consideration, the assessee sold a residential property at Triveninagar, Mohalla-Ahibranpur, Sitapur Road, Lucknow for a sum of Rs.1,50,00,000/-(value as per section 50C of Rs.1,62,47,700/-) to Dr. Mamta Gaur and Dr. Ajay Kumar on 17.02.2016. The AO noted that this property was received by the assessee through Will executed on 19.03.2004 from his grandmother Smt.

Sarojni Devi Kapoor and the assessee had worked out the capital gains as under:-

Sale consideration of the property Rs.1,50,00,000/- Less: Indexed cost of acquisition Rs. 43,56,132/- Long Term Capital Gain Rs.1,06,43,868/- Less: Deduction u/s 54 of the IT Act, Rs. 1,01,55,000/- 1961 Net Long Term Capital Gain Rs. 4,88,868/- 3.2. The AO noted that the assessee while calculating the LTCG had not adopted the sale consideration of the property as per section 50C of the Act. The AO further noted that the assessee had purchased new residential property for Rs.95,00,000/- and had paid stamp duty of Rs.6,55,000/- on 08.08.2016. The AO on examination on details of payments made to the seller to acquire new residential house property found that the assessee made the payment to the seller to claim deduction u/s 54F of the Act as under:-

On examination of the details of the investment made by the assessee to acquire the property, the AO found that the assessee had invested Rs.78, 05,000/- on 10.08.2016, Rs.95,000/- on 09.08.2016 and Rs.06,55,000/- on 08.08.2016 and noted that these investments were made by the assessee after the due date of filing of ITR in the case of the assessee. The AO after analyzing the provision of section 54(2) of the Act held that assessee should have deposited LTCG of Rs.85,55,000/-, which was not utilized to acquire new property before the due date of filing of ITR i.e. 05.08.2016 in the capital gain account and then after making withdrawal from it, the assessee should have invested to acquire new property, which was not done by the assessee in this case. The AO relying upon the provisions of section 54(2) held that the LTCG of Rs.85,55,000/- invested to acquire new property after due date of filing of ITR without depositing to the capital gain account was not eligible for deduction u/s 54(2) of the Act and restricted the deduction at Rs.16,00,000/- as against Rs.1,01,55,000/- claimed by the assessee.

3.4. In this regard, on both the issues, i.e. adoption of sale consideration of the property not as per the provision of section 50C of the Act and wrong claim deduction u/s 54(2) of the Act, a show cause notice dated 23.08.2018 issued by the AO.

3.5. In reply, the assessee submitted that property was sold at a lower price due to continued violence and threat by adjacent land lord, who wanted to acquire their property. Regarding the reasons for not depositing the capital gain amount in the capital gains account, the assessee submitted that he was not aware about the legal consequences of not depositing the capital gains within the due dates in capital gain account and other compulsions. The reply of the assessee is reproduced as under “Though the valuation as per section 50C was higher than the sale price, I had no other option than to sell the property at lower rates because of scarcity of time and means to find a buyer deal for the higher valuation of 1.62 crores. The main reason of selling the Lucknow property at 1.50 er was the continued violence and threats by the adjacent landlord (Classic Motors Owner, having property on both the sides of my house), me and my family were bothered every now and then and they even tried to cause physical harm to me. They wished to acquire our property also. As my mother was living there alone, it was very unsafe. We therefore decided to do away with the property ASAP and the among the best available deal, sold the property at 1.50 crores. Even after we left the premises, there was still violence and FIR lodged by the new occupants for physical assault done o them by those peoples." "Depositing the amount in Capital Gain amount could not he done due to 3 prime reasons: - a) I was not aware about the consequences of not depositing the Capital Gain amount within the due dates in Capital Gain Bank Account. b) We had to do the registry in early August however due to strike in Ghaziabad Court we were sent back and had no choice but to wait (in July last week and August first week also), and c) The seller (Mr. Gurpreet Singh Sohal) was residing in Canada and he was due to travel to India in the last week of July for registry, however he could not come and the Registry was done by his mother in law (on power of auorney). This was one more reason for the delays in registry. Hence, we were always in a perplexed situation for opening the CG account." 3.6. The AO did not agree with the assessee mainly because of not furnishing any evidence to support his claim of violence by the adjacent land lord and that ignorance of law was no defence and he rejected the other claims of the assessee in this regard. The AO discussed the matter as under and recomputed the LTCG at Rs.1,02,91,568/- accordingly:

“The reply of the assessee is not acceptable as the assessee did not furnish any evidence i.e. copy of FIR lodged against the owners of M/s Classic Motors for doing violence and threatening to the assessee with the intention to acquire property forcefully. Besides, the assessee did not furnish any evidence for taking legal action against the owners of M/s Classic Motors for their misbehaviour. Thus, in view of the above, the assessee's contention for not adopting the sale consideration as per section SOC of the IT Act, 1961 for computation of LTCG is not acceptable. Besides, the assessee's contention that he was not aware of the provisions of section 54(2) of the IT Act, 1961 is not acceptable "as ignorance of law is no excuse". In addition to this, the assessee submitted that "due to strike in Ghaziabad Court we were sent back and had no choice but to wait (in July last week and August first week also)". This contention of the assessee is also not acceptable if there was strike in Ghaziabad Court then he should have deposited unutilized LTCG in the Capital Gain Account but he did not deposit the unutilized LTCG to the capital gain account, therefore the assessee did not comply with the provisions of section 54(2) of the IT Act, 1961. Further, the assessee submitted that "seller (Mr. Gurpreet Singh Sohal) was residing in Canada and he was due to travel to India in the last week of July for registry, however he could not come and the Registry was done by his mother in law (on power of attorney)". The provisions of section 54(2) of the IT Act, 1961 mandates that the investment must be before the due date of filing of ITR and unutilized LTCG must be deposited in the capital gain account be before the due date of filing of ITR as provided u/s 139(1) of the IT Act, 1961. The transfer of the property can be done after due date of filing ITR. Therefore, the contention of the assessee that the seller could not come and the registry was done in August-2016 is not acceptable. Therefore, in view of the above discussion and facts, the LTCG has been worked out as under:- Sale consideration of the Rs.1,62,47,700/- property (as per sec: 50C) Less: Indexed cost of Rs.43,56,132/- acquisition Long Term Capital Gain Rs.1,18,91,568/- Less: Deduction u/s 54 of Rs.16,00,000/- the IT Act, 1961 (invested before due date of filing of ITR) Net Long Term Capital Gain Rs.1,02,91,568/-

Thus in view of the above, the income of the assessee is recomputed as under:- 1 Salary income Rs.7,73,213/- 2 Income from other sources Rs.93,703/- 3 Less: Deduction under Chapter VIA Rs.1,41,645/- 4 Net Taxable income Rs.7,25,271/- 5 Long Term Capital Gain Rs.1,02,91,568/-

6.2. Further, as regards the non-deposit of the capital gains amount in the capital gains account before the due date of the filing of the return, the Ld. AR relied upon the decision of the Co-ordinate Bench in the case of Smt. Manider Kartik vs DCIT in order dated 20.09.2023, wherein the Bench followed the decision of the CIT vs Venkat Dilip Kumar (277 taxmann 463) where it was held that where the assessee is in position to satisfy the requirements as envisaged in u/s 54(2) of 54(1) of the Act, the assessee could not be denied exemption u/s 54 of the Act for mere non-compliance of requirement u/s 54(2) of the Act.

Therefore, in view of the decision of the Co-ordinate Bench in the case of Amrapali Cinema vs ACIT (supra), the action of the AO is not justified and therefore, the AO is directed to adopt the sale consideration at Rs.1,50,00,000/- as offered by the assessee in computing the capital gains. Further, in this case, in view of the difficulties explained by the assessee, the capital gains amount of Rs.85,55,000/- could not be deposited in the capital gains account before the due date of filing of return on 05.08.2016. The Co-ordinate Bench in the case of Smt.

Maninder Kartik (supra) noted that in the case laws relied by the assessee, it has been held that depositing the unutilized amount in a special account is only a procedural matter, and non-compliance thereof cannot result in negating the deduction claimed u/s 54 of the Act, if the other requirements are complied with. As seen in the present case, the assessee had complied with the other requirements of section 54 of the Act. However, the assessee has deposited the amount of Rs.85,55,000/- on or before 10.08.2016, which was five days later than the due date of filing of the ITR on 05.08.2016 in the case of the assessee. In the case relied by the ld. AR also, the ld. CIT(A) had allowed deduction for the amount spent up to the date of filing of return of Rs.27,00,000/- only and did not allow the rest of the payment, which was paid in the next week of the due date of the filing of the return. However, the Co-ordinate Bench allowed the full deduction including the amount, which was paid in the next week after the due date of the filing of the return. In the present case also, the assessee deposited the amount within five days of the due date of file of the return. Therefore, the facts being similar in the case of the assessee, the decision of the Co-ordinate Bench in the case of Smt.

Maninder Kartik (supra) will be squarely applicable. Respectfully following the decision, it is held that the deposit/payment of stamp duty of Rs.85,55,000/- is as per the provisions of section 54(2) of the Act and the AO is directed to allow the full claim of deduction of Rs.1,01,55,000/- as claimed by the assessee.

8.1. Therefore, in view of the discussion, the AO is directed to accept the LTCG of Rs.4,88,868/- as offered by the assessee in his return of income and the addition of Rs.98,02,700/- under LTCG is hereby deleted.

Order pronounced in the open court on 29th May, 2024.