Sanjay Gopaldas Bajaj Vs ITO (ITAT Mumbai)
Section 54 Deduction Allowed in Reassessment Despite No Original Return: ITAT Mumbai Applies Correct Reading of Sun Engineering
The Mumbai ITAT (“F” Bench) partly allowed the appeal of the assessee for AY 2015-16 and held that deduction under section 54 cannot be denied merely because no original return was filed under section 139(1), where the claim is made in a return filed in response to notice under section 148 and is directly relatable to the escaped income.
In this case, reassessment was initiated on account of long-term capital gains arising from sale of a residential property. Although the assessee had not filed the original return within time, he disclosed the LTCG in the return filed pursuant to section 148 and simultaneously claimed deduction under section 54 on reinvestment in another residential property. The AO as well as the NFAC (Appeals) rejected the claim solely on the ground that section 54 deduction was not claimed in the original return and relied on CIT v. Sun Engineering Works (P) Ltd.
The Tribunal held that such reliance was misplaced and based on an incomplete understanding of the Supreme Court ruling. It clarified that Sun Engineering does not bar claims in reassessment proceedings if such claims are directly connected with the income that has escaped assessment. Since section 54 deduction goes to the computation of the very capital gain brought to tax in reassessment, the assessee was legally entitled to raise the claim in proceedings under section 147/148.
The ITAT further relied on co-ordinate bench decisions holding that section 54/54F does not prescribe filing of a return under section 139 as a condition precedent and that claims made in returns filed pursuant to section 148 cannot be rejected merely due to delay. The Tribunal also noted that in identical facts, the AO had allowed section 54 deduction to the assessee’s wife for the remaining share of investment.
Accordingly, the orders of the lower authorities were set aside and the matter was restored to the Assessing Officer for limited verification of fulfillment of conditions under section 54. The ground relating to application of tax at 30% instead of 20% was held to be consequential. The appeal was allowed for statistical purposes.
