Income Tax Appellate Tribunal Allows Deduction under Section 54 (of Income Tax Act, 1961) in Capital Gain Case

Case Name:

Ms. Sarita Gupta vs. Pr. CIT, Ghaziabad (ITA No.1174/Del/2022)

Key Takeaways:

1. The assessee, Ms. Sarita Gupta, sold an immovable property and claimed exemption under section 54 (of Income Tax Act, 1961) by investing the entire capital gain amount in a new residential property.
2. The Assessing Officer accepted the return of income and completed the assessment.
3. The PCIT disallowed the deduction claimed under section 54 (of Income Tax Act, 1961), stating that the capital gain amount was not deposited in the capital gain account scheme.
4. The Income Tax Appellate Tribunal held that the PCIT’s decision was invalid and quashed the order passed under section 263 (of Income Tax Act, 1961).
5. The Tribunal stated that when the basic conditions of section 54(1) (of Income Tax Act, 1961) are satisfied, the assessee remains entitled to claim the deduction.
6. The Tribunal emphasized that no prejudice was caused to the Revenue as the assessee was entitled to the deduction under section 54(1) (of Income Tax Act, 1961).

Case Synopsis:

This is an order from the Income Tax Appellate Tribunal, Delhi Bench, regarding an appeal filed by Ms. Sarita Gupta against the Principal Commissioner of Income Tax (PCIT), Ghaziabad. The appeal is related to the assessment year 2012-13.

Here are the key details from the order:

The assessee, Ms. Sarita Gupta, is a resident individual.

The Assessing Officer received information that the assessee had sold an immovable property for Rs.62,06,000 during the relevant assessment year.

Based on this information, the Assessing Officer reopened the assessment under section 147 (of Income Tax Act, 1961) of the Income Tax Act.

The assessee filed her return of income declaring an income of Rs.6,42,470, which was the income declared in the original return of income.

During the assessment proceedings, the Assessing Officer asked the assessee to provide details of the property sold and the resultant capital gain.

The assessee provided all the details, including the fact that the property was jointly owned with another co-owner and was purchased for Rs.20 lakhs, with the assessee’s share being Rs.10 lakhs.

The property was sold for Rs.62,06,000, with the assessee’s share being Rs.31,03,000.

After considering the cost of acquisition and indexation benefit, the long-term capital gain arising from the sale of the property was calculated to be Rs.14,59,324.

The assessee claimed exemption under section 54 (of Income Tax Act, 1961) of the Income Tax Act by investing the entire capital gain amount in the purchase of a new residential property.

The Assessing Officer accepted the return of income and completed the assessment.

After the completion of the assessment, the Principal Commissioner of Income Tax (PCIT) examined the assessment record and found that the capital gain amount was not deposited in the capital gain account scheme during the interim period until its utilization in the purchase/construction of the new property. The PCIT considered this as an error in the assessment order and issued a show-cause notice under section 263 (of Income Tax Act, 1961) of the Income Tax Act.

The assessee provided a detailed reply objecting to the proposed action under section 263 (of Income Tax Act, 1961), but the PCIT rejected the submission and set aside the assessment order with a direction to disallow the deduction claimed under section 54 (of Income Tax Act, 1961) of the Act.

The Income Tax Appellate Tribunal, Delhi Bench, considered the submissions and perused the materials on record. They noted that the Assessing Officer had thoroughly examined the issue of the sale of the immovable property and the resultant capital gain during the assessment proceedings. The Assessing Officer had also called upon the assessee to furnish details of the exemption claimed under section 54 (of Income Tax Act, 1961) with supporting evidence.

The Tribunal observed that the revisionary authority (PCIT) did not express any doubt regarding the quantum of capital gain or the fact that the capital gain was invested in the purchase/construction of a residential house within the time limit prescribed under section 54(1) (of Income Tax Act, 1961) of the Act. The revisionary authority treated the assessment order as erroneous and prejudicial to the interest of Revenue only because the capital gain was not deposited in the capital gain account scheme.

The Tribunal held that the PCIT had adopted a hyper-technical approach and that when the basic conditions of section 54(1) (of Income Tax Act, 1961) were satisfied, the assessee remained entitled to claim the deduction under section 54 (of Income Tax Act, 1961). They further stated that no prejudice was caused to the Revenue as the assessee was entitled to the deduction under section 54(1) (of Income Tax Act, 1961).

Therefore, the Tribunal held that the exercise of power under section 263 (of Income Tax Act, 1961) to revise the assessment order was invalid. They quashed the order passed under section 263 (of Income Tax Act, 1961) and restored the assessment order.

In conclusion, the appeal filed by Ms. Sarita Gupta was allowed by the Income Tax Appellate Tribunal, and the order passed by the Principal Commissioner of Income Tax (PCIT) was set aside.

FAQ:

Q1: What was the issue in the case?

A1: The issue in the case was whether the assessee was entitled to claim a deduction under section 54 (of Income Tax Act, 1961) for the capital gain amount invested in a new residential property, even though the capital gain amount was not deposited in the capital gain account scheme.

Q2: What was the decision of the Income Tax Appellate Tribunal?

A2: The Income Tax Appellate Tribunal held that the assessee was entitled to claim the deduction under section 54 (of Income Tax Act, 1961) as the basic conditions were satisfied. They quashed the order passed by the Principal Commissioner of Income Tax disallowing the deduction.

Q3: What was the reasoning behind the Tribunal’s decision?

A3: The Tribunal stated that the revisionary authority (PCIT) had adopted a hyper-technical approach and that the assessee remained entitled to the deduction under section 54(1) (of Income Tax Act, 1961). They emphasized that no prejudice was caused to the Revenue as the basic conditions were met.

The present appeal of the assessee arises out of order dated 22.03.2022 passed by learned Principle Commissioner of Income Tax (PCIT), Ghaziabad, under section 263 (of Income Tax Act, 1961) for the assessment year 2012-13.

2. Briefly the facts are, the assessee is a resident individual. Information was received by the Assessing Officer indicating that in the year under consideration, the assessee had sold an immovable property for a consideration of Rs.62,06,000/-. Based on such information, the Assessing Officer reopened the assessment under section 147 (of Income Tax Act, 1961). In response to the notice issued under section 148 (of Income Tax Act, 1961), the assessee filed her return of income declaring income of Rs.6,42,470/-, which was the income declared in the original return of income.

3. In course of assessment proceedings, the Assessing Officer called upon the assessee to furnish the details of the properties sold and the resultant capital gain. In response, the assessee furnished all the details relating to the property sold and the capital gain arising out of such property. From the details furnished, it was found by the Assessing Officer that the property was under the joint ownership of the assessee and another coowner and was purchased for an amount of Rs.20 lakhs, out of which, assessee’s share was Rs.10 lakhs. Whereas, the property was sold for a consideration of Rs. 62,06,000/-, out of which the assessee share was Rs. 31,03,000/-. After reducing the cost of acquisition and indexation benefit, the long term capital gain arising out of sale of property worked out to Rs.14,59,324/-. Whereas, the assessee has made investment in purchase of new residential property of the entire capital gain amount, hence, claimed exemption under section 54 (of Income Tax Act, 1961). After verifying all the details, the Assessing Officer accepted the return of income filed by the assessee and accordingly completed the assessment.

4. Post completion of assessment, learned PCIT called for and examined assessment record and while doing so, she found that the capital gain amount was not deposited in the capital gain account scheme during the interim period till its utilization in purchase/construction of new property. She observed, the aforesaid facts were not considered/inquired into by the Assessing Officer. Thus, she was of the view that due to nonconsideration of these facts the assessment order is erroneous and prejudicial to the interest of Revenue. Therefore, she issued a show-cause notice under section 268 (of Income Tax Act, 1961) calling upon the assessee to show-cause as to why, the assessment order should not be declared as erroneous and prejudicial to the interest of Revenue and set aside. The assessee furnished a detailed reply objecting to the proposed action under section 263 (of Income Tax Act, 1961).

However, rejecting assessee’s submission learned PCIT set aside the assessment order with a direction to disallow the deduction claimed under section 54 (of Income Tax Act, 1961), as, the assessee has failed to deposit the capital gain amount in capital gain account scheme.

5. We have considered rival submissions and perused the materials on record. From the order sheet maintained by the Assessing Officer in the assessment record, it is evident that in course of assessment proceedings, the Assessing Officer has thoroughly examined the issue of sale of the immovable property and the resultant capital gain arising from such sale. In fact, in order-sheet entry dated 18.06.2019, the Assessing Officer has clearly stated that assessee’s counsel has furnished written reply, sale deed, copy of purchase of property and computation of capital gain. In the said order sheet, the Assessing Officer has also called upon the assessee to furnish the details of exemption claimed under section 54 (of Income Tax Act, 1961) with supporting evidences. Thus, as could be seen from the order-sheet entries in the assessment record, the Assessing Officer has duly examined the issue relating to capital gain from sale of property as well as assessee’s claim of deduction under section 54 (of Income Tax Act, 1961). A perusal of the showcause notice issued under section 263 (of Income Tax Act, 1961) as well as the order passed under the said provision clearly reveal that the revisionary authority has not expressed any doubt regarding the quantum of capital gain arising at the hands of the assessee and also the fact that such capital gain was invested in purchase/ construction of residential house within the time limit prescribed under section 54(1) (of Income Tax Act, 1961). Only because the capital gain was not deposited in the capital gain account scheme, the revisionary authority has treated the assessment order to be erroneous and prejudicial to the interest of Revenue.

In our view, learned PCIT has adopted a hyper-technical approach while dealing with the issue. When the basic conditions of section 54(1) (of Income Tax Act, 1961) has been satisfied, in our view, the assessee remains entitled to claim the deduction under section 54 (of Income Tax Act, 1961). In any case of the matter, there is no prejudice caused to the Revenue as the assessee in terms of section 54(1) (of Income Tax Act, 1961) is entitled to deduction.

6. In the aforesaid view of the matter, we hold that exercise of power under section 263 (of Income Tax Act, 1961) to revise the assessment order in the instant case is invalid. Accordingly, we quash the order passed under section 263 (of Income Tax Act, 1961) and restore the assessment order.

7. In the result, the appeal is allowed.

Order pronounced in the open court on 7th December, 2023

Sd/- Sd/-

(M. BALAGANESH) (SAKTIJIT DEY)

ACCOUNTANT MEMBER VICE-PRESIDENT

Dated: 7th December, 2023.