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Income Tax Appellate Tribunal, MUMBAI BENCH “SMC”, MUMBAI
The captioned appeal is preferred by the assessee and is directed against the impugned order dated 19/12/2014 of CIT(A)-36, Mumbai, pertaining to the assessment year 2004-05, which in turn has arisen from an order passed by the Assessing Officer dated 24/03/2010 under section 154 of the Income Tax Act, 1961( in short “the Act”).
(Assessment Year : 2004-05) 2. In this appeal, although the assessee has raised multiple grounds of appeal, but the solitary dispute is against the action of the Assessing Officer in scaling down the exemption under section 54 of the Act to Rs.7,12,000/- instead of Rs.12,37,000/- allowed in the assessment finalized under section 143(3) of the Act dated 15/11/2006.
3. In brief, the relevant facts are that assessee is an individual, who filed his return of income for assessment year 2004-05 on 30/10/2004, declaring a total income of Rs.2,30,240/-. The return of income filed by the assessee was subject to a scrutiny assessment, whereby the total income was assessed at Rs.3,24,676/- vide order dated 15/11/2006 (supra). In so far as it is relevant for the present purpose, it is noted that while finalizing the assessment under section 143(3) of the Act, the long term capital gain declared by the assessee on sale of property was recalculated by applying section 50C of the Act and exemption under section 54 of the Act was allowed to the extent of Rs.12,37,000/-, as claimed in the return of income, on account of investment in residential flat. Subsequently, the Assessing Officer issued notice under section 154 of the Act proposing to rework the exemption allowed under section 54 of the Act, on the ground that assessee had utilized profits of loan raised from the bank for making investment in the new flat. After considering the stand of the assessee, the Assessing Officer passed an order under section 154 of the Act dated 24/3/2010, whereby he amended the assessment order dated 15/04/2006(supra) scaling down the exemption under section 54 of the Act to Rs.7,12,000/- as against Rs.12,37,000/- allowed earlier. The Assessing Officer noted that assessee had availed a loan of Rs.5,25,000/- from (Assessment Year : 2004-05) Swaraswat Co-operative Bank for purchasing the new house and, therefore, it meant that the amount of capital gain used for purchase of the new house was to the extent of Rs.7,12,000/- only and, therefore, the balance of Rs.5,25,000/- remained with the assessee which remained to be taxed. The said action of the Assessing Officer has been affirmed by the CIT(A) and accordingly, the assessee is further in appeal before the Tribunal.
At the time of hearing, the Ld. Representative for the assessee has made two fold arguments. Firstly, it is contended that the issue raised by the Assessing Officer by invoking section 154 of the Act i.e. whether investment made in the new property out of borrowed funds is eligible for exemption under section 54 of the Act is a debatable issue on which it is possible to have two interpretations and is, therefore, outside the purview of section 154 of the Act. Secondly, it is pointed out that the action of the Assessing Officer is not within the frame work of section 54 of the Act itself, because the said section does not require that the same funds of capital gains must be utilized for the purchase of the new residential house. In support of the said, reliance has been placed on the decision of the Mumbai Bench of the Tribunal in the case of ACIT vs. Dr.P.S. Pasricha, in dated 11/01/2008, which has been further affirmed by the Hon’ble Bombay High Court vide order in Income Tax Appeal No.1825 of 2009 dated 7/10/2009, copies of the said decisions have been placed on record.
On the other hand, Ld. Departmental Representative appearing for the Revenue contended that Assessing Officer has clearly
(Assessment Year : 2004-05) established that the loan raised from bank was utilized for purchasing of new house and, therefore, to that extent the claim of exemption under section 54 of the Act has been correctly denied.
I have carefully considered the rival submissions. Ostensibly, the crux of the controversy revolves around the provisions of section 54 of the Act, which prescribes for exemption of capital gain arising on sale of residential property in case assessee purchases or constructs another residential house within the prescribed period. In the present case, the pertinent point raised by the Assessing Officer is that the amount spent in acquisition of the new residential property included a sum of Rs.5,25,000/-, which was a loan availed from the bank. Otherwise there is no dispute that the investment in the new residential flat is more than the amount of capital gain. In my considered opinion, the lower authorities have not appropriately appreciated the provisions of section 54 of the Act, in as much the requirement is that assessee should either purchase or construct a residential house within the specified period and the source of fund is not a relevant criteria. So long as the amount of capital gain is greater than the cost of the residential house so purchased or constructed, the entire gain is exempt and if the amount of capital gain is equal to or less than the cost of the new residential house, then the exemption is properly worked out. The Mumbai Bench of the Tribunal in the case of Dr.P.S Pasricha (supra) has interpreted the requirement of section 54 of the Act in the aforesaid manner and the same has also been approved by the Hon’ble Bombay High Court vide order dated 7/10/2009(supra). There is no dispute in the present case that the investment in the new flat considered by the Assessing Officer
(Assessment Year : 2004-05) is otherwise eligible for exemption under section 54 of the Act. In view of the aforesaid, in my considered opinion, it makes no difference that the cost of the new flat to the extent of Rs.5,25,000/- has been met by the assessee out of the loan funds.
Apart therefrom, it is also manifestly clear that Assessing Officer erred in inferring that no other opinion is possible on the impugned issue, so as to justify the invoking of section 154 of the Act. Quite clearly, section 154 of the Act only permits rectification of mistakes which are ‘apparent from the record’. Thus, only patent and obvious mistakes fall within the purview of section 154 of the Act and in the present case, the impugned issue is not free from debate. Therefore, on this aspect also I find no reason to uphold the stand of the lower authorities.
In the result, I set aside the order of the CIT(A) and direct the Assessing Officer to restore the exemption allowed under section 54 of the Act of Rs.12,37,000/- in the assessment order dated 15/11/2006(supra).
As a consequence the appeal of the assessee is allowed as above. Order pronounced in the open court on 23/12/2015.