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Income Tax Appellate Tribunal, MUMBAI BENCH “I” MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI N.K. PRADHAN
ORDER
PER N.K. PRADHAN, AM
This is an appeal filed by the Revenue. The relevant assessment year is 2012-13. The appeal is directed against the order of the Commissioner of Income Tax (Appeals)-46, Mumbai [ in short ‘CIT(A)’] and arises out of the assessment completed u/s 143(3) of the Income Tax Act 1961, (the ‘Act’).
The ground of appeal
filed by the Revenue reads as under: I. On the facts and circumstances of the case and in law Ld. CIT(A) erred in ignoring the provision of section 54(2) clearly spelt that to avail the Shri Manish Vasavada 54 the assessee is required to deposit the capital gain to any notified capital gain account scheme on or before the due date of filing return of income u/s 139(1). In the instant case, the section 139(4) allows the assessee to file belated return but to avail the deduction u/s 54 the assessee is required to deposit the unutilized capital gain to eligible capital gain account scheme or purchase new asset within the due date of filing the return of income and the assessee has failed to do that without any reason. II. The appellant prays that the order of the Ld. CIT(A) on the above grounds be set aside and that on the AO be restored.
3. Briefly stated, the facts of the case are that the assessee filed his return of income for the assessment year (AY) 2012-13 on 26.03.2014 declaring total income of Rs.79,76,797/-. The assessee had claimed Rs.1,46,20,735/- as exemption u/s 54 of the Act. The Assessing Officer (AO) found that the assessee had not deposited the sale proceeds of the properties sold in the Capital Gains Accounts Scheme (CGAS). In response to a query raised by the AO, the assessee submitted that the main intention of law is to grant exemption of the capital gains arising out of sale of a house property to the extent of amount invested in the new residential property. It is also submitted by the assessee that the due date for furnishing the return of income as per section 139(1) is subject to the extended period provided u/s 139(4). Also it is stated that the investment proceeds of capital gains in CGAS is a procedural compliance and it is intended to make sure that the proceeds of capital gains invested into new property and the funds are not diverted elsewhere. It is also clarified by him that he was not able to spare time for the formalities of opening the Capital Gains Account. However, it is Shri Manish Vasavada 139(4). 3.1 However, the AO was not convinced with the above explanation of the assessee for the reason that section 54(2) clearly states that the deposit in CGAS must be made not later than the due date applicable in the case of the assessee for furnishing the return of income u/s 139(1) of the Act. The AO also found the explanation of the assessee that “he was not able to deposit the proceeds in Capital Gains Deposit Scheme due to his personal problems and his professional commitments as a pilot” as not at all acceptable. In view of the above reasons, the AO disallowed the claim of Rs.1,46,20,735/- made by the assessee u/s 54 of the Act.
4. Aggrieved by the order of the AO, the assessee filed an appeal before the Ld. CIT(A). The Ld. CIT(A) took note of the fact that the assessee had filed his return of income on 26.03.2014 which was a belated return u/s 139(4). On the date of filing of return, the assessee had already invested in new property. For the purpose of section 54(2), the requirement is that the assessee should have invested in CGAS within the due date u/s 139(1). Before the Ld. CIT(A), the AR of the assessee relied on the decision in CIT v. Ms. Jagriti Aggarwal 339 ITR 610 (P&H); Anilkumar Omkar Singh v. ITO in (Mumbai Tribunal); Sh. Sunil Vishnu Mehta v. ITO in ITA No. 2948/Mum/2012 (Mumbai Tribunal); Shri Manish Vasavada Fatimabai v. ITO 2008 (10) TMI 563 (Karnataka HC); Y. Malarvizhi v. ITO 1958/Mds/ 2013 dt. 10.11.2014 (Chennai Tribunal). Reference was also made to Circular No. 495 dated 22.10.1987 wherein amendment to section 54 and its intent is discussed. The Ld. CIT(A) observed that the assessee being an individual, the due date for filing the return of income u/s 139(1) was 31.07.2012 and hence the exemption u/s 54 was limited to the investment in property (being residential flat) and CGAS upto 31.07.2012 was to be allowed. This was independent of the date on which the assessee actually filed the return of income. The assessee had instead invested after the due date u/s 139(1) but before the belated return filed u/s 139(4). The Ld. CIT(A) relied on the decision in Kishore H. Galaiya v. ITO 137 ITD 229, Jagriti Aggarwal (supra), CIT v. Rajesh Kumar Jalan (2006) 286 ITR 274 (Gau.), Anilkumar Omkar Singh (supra), and held that the intent of time limit allowed u/s 54(2) to be that u/s 139(4) instead of section 139(1). As the assessee in the instant case had invested in new property before filing of return of income on 26.03.2014 u/s 139(4), the Ld. CIT(A) directed the AO to allow the deduction u/s 54 of the Act.
Before us, the Ld. DR submits that the deposit CGAS must be made not later than the due date applicable in the case of the assessee for furnishing the return of income u/s 139(1) of the Act. Also it is stated that the plea of the assessee that CGAS is a procedural compliance and the assessee was not able to spare time for opening the account and delay in withdrawal of the amounts, are not acceptable, as the Act is Shri Manish Vasavada CGAS is mandatory. The Ld. DR thus supports the order passed by the AO.
Per contra, the Ld. counsel of the assessee submits that the issue is covered in favour of the assessee by the decision in Rajesh Kumar Jalan (supra) and Kishore H. Galaiya (supra).
We have heard the rival submissions and perused the relevant materials on record. In the case of Rajesh Kumar Jalan (supra), relied on by the Ld. counsel, the Hon’ble High Court held : “From a plain reading of sub-section (2) of section 54 of the Income-tax Act, 1961, it is dear that only section 139 of the Income-tax Act, 1961, is mentioned in section 54(2) in the context that the unutilized portion of the capital gain on the sale of property used for residence should be deposited before the date of furnishing the return of the Income-tax under section 139 of the Income-tax Act, Section 139 of the Income-tax Act, 1961, cannot be meant only section 139(1) but it means all sub-sections of section 139 of the Income-tax Act, 1961. Under sub-section (4) of section 139 of the Income-tax Act any person who has not furnished a return within the time allowed to him under sub-section (1) of section 142 may furnish the return for any previous year at any time before the expiry of one year from the end of the relevant assessment year or before the completion of the assessment year whichever is earlier. Such being the situation, it is the case of the respondent/assessee that the respondent/assessee could fulfil the require- ment under section 54 of the Income-tax Act for exemption of the capital gain from being charged to income-tax on the sale of property used for residence up to March 30, 1998, inasmuch as the return of income-tax for the assessment year 1997-98 could be furnished before the expiry of one year from the end of the relevant assessment year or before the completion of the Shri Manish Vasavada (4) of section 139 of the Income-tax Act, 1961.” 7.1 In the case of Kishore H. Galaiya (supra), the assessee sold his share of residential flat on 07.03.2006 and earned a Long Term Capital Gain of Rs.9.98 lac. He purchased a new flat jointly with his wife for a consideration of Rs.35 lac. A total payment of Rs.13.50 lac was made by the assessee till 26.12.2007. On the ground that the entire capital gain was invested in the new flat, the assessee claimed exemption u/s 54 of the Act. The AO, however, denied the exemption on the ground that the assessee could not produce evidence regarding taking possession of the said flat within a period of two years from date of transfer of old flat and only evidence submitted was towards showing the fact that the purchase agreement was registered on 29.12.2007. On appeal, the CIT(A) upheld the order of the AO by holding that the capital gain had neither been deposited in the prescribed scheme nor the possession of the flat was obtained within the prescribed period. In further appeal, the Tribunal vide para 6.4 held : “6.4 The assessee has also made a point that the due date of filing of the return of income u/s 139(1) for the purpose of utilization of the amount for purchase/construction of residential house has to be construed with respect to the due date prescribed for filing of the return u/s 139(4) of the Act. The point made by the assessee is supported by the judgment of the Hon'ble Punjab and Haryana High Court in the case of Ms. Jagriti Aggarwal (supra). In the said case, the Hon'ble High Court observed that section 139(4) provides the extended period of limitation as an exception to the period provided u/s 139(1). Therefore, the Hon'ble High Court held that the provision of section 139(4) is not an independent provision but is related to the time Shri Manish Vasavada 139(1) of the Act. Accordingly, the Hon'ble High Court held that sub-section (4) to section 139 had to be read along with sub-section (1) and the due date for furnishing the return of income u/s 139(1) is subject to the extended period provided u/s 139(4) and hence the extended period u/s 139(4) has to be considered for the purposes of utilization of the capital gain amount. In that case, the assessee had sold the old flat on 13.1.2006 and the new residential house was purchased by the assessee on 2.1.2007 which was within the extended time limit till 31.3.2007 u/s 139(4) for assessment year 2006-07 and therefore the claim was allowed even though the amount had not been deposited in the capital gain account. The said judgment has been followed by the Delhi Bench of the Tribunal in the case of Jagtar Singh Chawla v. ACIT [IT Appeal No.4923/Delhi/2010 (AY- 2007-08), order dated 30.6.2011], in which case the Tribunal held that since the assessee had invested the whole amount by 23.4.2008 which was within the extended period of filing the return of income u/s 139(4) till 31.3.2009 and therefore, the assessee was entitled to claim exemption u/s 54(F). In the present case, the capital gain earned by the assessee was Rs. 9,98,411/- and the assessee had utilized a sum of Rs. 13.50 lakhs towards the construction of residential house by 5.7.2007 which was within the extended period of filing of the return u/s 139(4) till 31.3.2008 for the assessment year 2006-07. The assessee had thus utilized the amount which was more than capital gain earned towards construction of new residential house within extended period u/s 139 (4) and therefore the there was no default in not depositing the amount under the capital gain account scheme. Therefore, the claim made by assessee cannot be denied following the judgments cited (supra).” Thus the Tribunal held that the assessee was entitled to exemption u/s 54 of the Act.