Munish Babaji Sawant Vs ITO (ITAT Mumbai)
ITAT Mumbai held that capital gain exemption under section 54 of the Income Tax Act cannot be denied as investment was made within the time limit specified under section 139(4) of the Income Tax Act.
Facts- The only issue raised by the Assessee in various grounds of Appeal relates to addition of Rs. 29,40,881/- on account of denial of exemption u/s. 54. The facts and briefs are that as per AIR information, it was noticed that Assessee has sold a residential flat at Rs. 46,00,000/- on 04.06.2010. However, the capital gain arising from the sale of the said flat was not reflected in the ROI, as the assessee believed that the gain was exempt u/s. 54.
However, the revised computation was placed on record during the course of the assessment proceedings, where in the assessee claimed the entire capital gains as exempt u/s. 54.
The capital gains arising from the sale of residential house was invested in purchase of new house vide agreement dated 20.03.12. The entire purchase consideration was paid by 31.03.2012 and possession was obtained on 23.04.2012. However, the assessee did not deposit the amount of capital gains in the capital gains account scheme before the due date of filling return of income u/s 139(1) which was 31.07.2011.
Conclusion- Mere non-compliance of a procedural requirement under section 54(2) itself cannot stand in the way of the assessee in getting the benefit under section 54, if he is, otherwise, in a position to satisfy that the mandatory requirement under section 54 (1) is fully complied with within the time limit prescribed therein.
Thus, respectfully following the aforesaid ratio and principle laid down by the Hon’ble High Courts, I hold that if the investment u/s 54 has been made within the time limit of date specified u/s. 139(4), exemption cannot be denied. Thus, the claim of exemption u/s. 54 is allowed to the Assessee.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
The aforesaid appeal has been filed by the assessee against the order dated 12.03.2022, passed by NFAC Delhi, for the quantum of assessment passed u/s, 143(3) for the assessment year 2011-12.
2. The only issue raised by the Assessee in various grounds of Appeal relates to addition of Rs. 29,40,881/- on account of denial of exemption u/s. 54. The facts and briefs are that as per AIR information, it was noticed that Assessee has sold a residential flat at Rs. 46,00000/- on 04.06.2010. However, the capital gain arising from the sale of the said flat was not reflected in the return of income, as the assessee believed that the gain was exempt under section 54. However, the revised computation was placed on record during the course of the assessment proceedings, where in the assessee claimed the entire capital gains as exempt under section 54. The capital gains arising from the sale of residential house was invested in purchase of new house vide agreement dated 20.03.12. The entire purchase consideration was paid by 31.03.2012 and possession was obtained on 23.04.2012. However, the assessee did not deposit the amount of capital gains in the capital gains account scheme before the due date of filling return of income u/s 139(1) which was 31.07.2011.
3. The Assessing Officer held that;
i) The Assessee did not show the capital gains in his computation of income along with return of income. These facts emerged during the scrutiny proceedings. Therefore, as held by the Supreme Court in Goetz (I) ltd. 284 ITR 323 (SC), no new claim can be made before the Assessing Officer except through a revised return and not through mere filling of revised computation as in this case.
ii) There is failure on the part of the Assessee to deposit the capital gains in the capital gains account scheme before due date of furnishing return of income u/s 139(1).
In view of the same, AO denied the exemption u/s 54 to the assessee.
4. The Ld. CIT (A) upheld the contention of the Assessing Officer holding that:
i) Claim u/s 54 is not automatic unlike the exemptions prescribed u/s 10. Hence it is required to be made in the return of income to avail the benefit of sec. 54.
ii) The assessee has not satisfied the condition u/s 54(2) with regard to depositing the amount in capital gains deposit account as the new property is not acquired before the due date for filing the return u/s 139(1).
iii) A provision providing for an exemption, concession or exception as the case may be has to be construed strictly with certain exceptions.
iv) The assessee was required to deposit the proceeds in the specified capital gains account before the due date for filing the return u/s 139(1), which the appellant failed to do and hence his claim u/s 54 was rejected.
5. Before us, the Ld. Counsel submitted that;
> Firstly, the decision of the Apex Court in Goetze (India) Ltd. applies only to the power of the assessing officer to admit claim of the assessee otherwise than by way of revised return and not to power of appellate authorities to admit the claim and he referred to the judgment of Pruthvi Brokers and shareholders (P) Ltd. 349 ITR 336 (Bom) ;
> Secondly, if the investment u/s 54 is made within the due date specified u/s 139(4), Capital Gain exemption cannot be denied merely on account of failure on the part of the assessee to deposit the capital gains in the capital gains account scheme before due date specified u/s 139(1). In support he relied on Ms. Jagriti Aggarwal [2011] 15 taxmann.com 146 (Punjab &Haryana).
> Thirdly, where assessee was in a position to satisfy that amount for which deduction was sought for under section 54 was utilized either for purchasing or constructing residential house in India within time prescribed under section 54(1), assessee could not be denied benefit of section 54 for mere noncompliance of a procedural requirement under section 54(2). For this proposition he relied upon Venkata Dilip Kumar [2019] 111 taxmann.com 180 (Madras).
> Lastly, without prejudice, he submitted that the appellant was prevented by sufficient cause in complying with provisions of sec. 54(2) on account of personal difficulties. He was deputed to project in South Africa by his employer w.e.f. 04.07.2010. Before proceeding to South Africa, he had given power of attorney to his father to look after his financial transactions. Unfortunately, his father had a paralytic stroke and was hospitalized from 22.11.2020 to 01.12.2010. Since then he was suffering from permanent physical disability. On account of all these circumstances, the appellant could not comply with the provisions of sec. 54(2).
6. On the other hand, Ld. DR strongly relied the order of the Assessing Officer and CIT (A) and submitted that it is a statutory requirement that Assessee should deposit the proceeds in the special capital gains account before the due date of filling of the return of income u/s. 139(1) which Assessee has failed to do so and Assessee has to satisfy the condition prescribed u/s. 54(2).
7. After hearing, both the parties and on perusal of the impugned order, it is seen that, Assessee had on capital gain from the sale of flat the relevant chronology of events is as under:
