Kamal Chand Jain Vs CIT (ITAT Hyderabad)
Summary: The Hyderabad Bench of the Income Tax Appellate Tribunal considered whether an assessee could claim exemption under section 54GB on long-term capital gains invested in equity shares of a company that had been incorporated much earlier but had commenced business only during the relevant financial year.
For A.Y. 2017-18, the assessee, an individual, filed his return on 03.08.2018. The case was selected for limited scrutiny and notice under section 143(2) was issued on 09.08.2018. The Assessing Officer found that the assessee had claimed deduction/exemption of ₹2,60,99,699/- under section 54GB. The assessment under section 143(3) was completed on 30.11.2019 denying the exemption. The CIT(A) confirmed the assessment and dismissed the assessee’s appeal.
Before the Tribunal, the assessee submitted that the amount represented long-term capital gain from transfer of a residential property and that the entire capital gain had been invested in equity shares of M/s. Spads Polyplast Products Private Limited. Although the company had been incorporated on 27.03.2008, it had not commenced business activity or purchased plant and machinery until Financial Year 2016-17. According to the assessee, effective business operations commenced on 01.03.2017 and manufacturing plant and machinery were acquired during that year. Reliance was placed on section 54GB(6), the MSME certificate showing commencement of business on 01.03.2017, and the Memorandum explaining the provisions of the Finance Act, 2012. The assessee contended that the provision was intended to encourage investment in new start-up manufacturing enterprises and MSMEs and relied upon Bajaj Tempo Ltd. Vs. CIT for liberal construction of incentive provisions.
