Case Law Details
Smt. Sita Khandelwal Vs ACIT (ITAT Lucknow)
Income Tax Appellate Tribunal (ITAT) Lucknow has dismissed the appeal of Smt. Sita Khandelwal against the denial of exemption under Section 54 of the Income Tax Act. The dispute arose as the Assessing Officer (AO) disallowed the exemption, citing that the investment in the new residential property was made after the due date prescribed under Section 139(1) of the Act. The assessee had sold a jointly owned property, with her share amounting to ₹1.03 crore, and had claimed an exemption of ₹88 lakh by investing in a new property. However, as the investment was not made within the prescribed timeframe or deposited in a capital gains account, the AO rejected the claim, a decision later upheld by the Commissioner of Income Tax (Appeals) [CIT(A)].
The assessee argued that the exemption should be granted since the investment was made before filing the belated return under Section 139(4). She contended that judicial precedents had recognized the extended time limit for exemption under Section 54. However, both the AO and CIT(A) ruled that the due date for investment should be considered under Section 139(1), not 139(4). It was also observed that the capital gains amount was transferred to M/s Kiran Enterprises instead of being deposited in a capital gains account, further violating the provisions of Section 54.
The ITAT upheld the lower authorities’ decisions, relying on judicial precedents such as Humayun Suleman Merchant vs. CCIT Mumbai (242 Taxman 189) and Smt. Basaribabu Mohd. Rafiq Latiwal vs. ITO (164 ITD 346, 2017). These cases established that if an assessee does not utilize the capital gains for a new asset before the due date under Section 139(1) or fails to deposit it in a capital gains account, the exemption cannot be granted. The tribunal found that the assessee neither deposited the amount nor invested it within the specified timeframe, making her ineligible for the exemption.
Consequently, the ITAT dismissed the appeal, affirming that the assessee’s failure to comply with statutory requirements under Section 54 justified the disallowance of exemption. The decision reinforces the principle that taxpayers must adhere to strict timelines for availing benefits under the Income Tax Act, as judicial interpretations continue to emphasize compliance with Section 139(1) deadlines over 139(4).
FULL TEXT OF THE ORDER OF ITAT LUCKNOW
This appeal has been filed by assessee for assessment year 2015-16 against impugned appellate order dated 31/10/2019 passed by learned Commissioner of Income Tax (Appeals) [“CIT(A)” for short]. The grounds of appeal are as under:
“1. BECAUSE, on the facts and in the circumstances of the case the impugned order passed by the Ld. Commissioner of Income Tax (Appeals) suffers from manifest errors of law since the same do not lawfully interpret and apply the provisions of Section 54 of the Income Tax Act and erroneously ignores to follow the judgment of this Hon’ble Tribunal and other Courts holding that the due date for filling of the Return of Income as postulated U/s 139 also includes the time available for filling a belated Return of Income as contemplated under Section 139(4) of the Act.
2. BECAUSE, on the facts and in the circumstances of the case the impugned order passed by the Ld. Commissioner of Income Tax (Appeals), Dt. 31.10.2019, is unsustainable in law as the authorities below, have categorically admitted the following factual aspect of the matter i.e. investment in the purchase of new capital asset stood concluded before the filling of the Return of Income for the relevant Assessment Year; hence on a plain reading of the statute, the words “before the date of furnishing the Return of Income Us 139” being not qualified and restricted to Section 139(1) of the Act and also includes Section 139(4) of the Act. This has been judicially settled by large number of judgments and hence the order passed by the Ld. Commissioner of Income Tax (Appeals) is bad in law and liable to be set-aside and quashed.
3. BECAUSE, on the facts and in the circumstances of the case the denial of exemption u/s 54 of the Act by the Ld. Assessing Officer and as confirmed by the Ld. Commissioner of Income Tax (Appeals) is wholly misplaced in law since the Ld. Commissioner of Income Tax (Appeals) has rested its decision by placing reliance on the provisions of Section 54F of the Income Tax, Act whereas the assessee submitted her claim for deduction U/s 54 as duly noticed by the Ld. Assessing Officer and hence the order passed by the learned Commissioner of Income Tax (Appeals) is bad in law and liable to be set aside.
4. BECAUSE, wholly without prejudice to the above mentioned grounds of appeal in the facts and circumstances of the case the order passed by the Ld. Commissioner of Income Tax (Appeals) is further unsustainable in law as the first tranche of purchase consideration of the new capital asset was made on 27.09.2015 which is admittedly prior to the date of furnishing the original return of income which is mentioned in the body of the Assessment Order as 30.09.2015 and therefore even on this count the capital gains ought to have been treated as exempt.”
2. The facts of the case, in brief, are that the assessee had filed her return of income for the year under consideration on 30/01/2016, declaring total income at Rs.14,92,910/-. Assessment was completed u/s 143(3) of the Act vide order dated 30/06/2017 at a total income of Rs.1,02,51,530/-. The assessee had sold out a residential house owned jointly with Smt. Savita Khandelwal for a sale consideration of Rs.2,06,96,000/- and the assessee’s share in the property was worked out at Rs.1,03,48,000/-. After claiming index cost of acquisition and index cost of improvement, net capital gain was disclosed at Rs.87,58,620/- against which deduction u/s 54 of the I. T. Act has been claimed by showing investment in house property at Rs.88,00,000/-. The investment in purchase of property has been made after due date of filing of return u/s 139(1) of the Act. Due date of filing of return by the assessee was 30/09/2015. The Assessing Officer noted that investment in new property of Rs.88,00,000/- was made after due date of filing of return for assessment year 2015-16 i.e. after 30/09/2015. Investment in flat was made on 27/09/2015 for Rs.10,00,000/- and on 15/12/2015 for Rs.78,00,000/-. Thus, investment in flat i.e. new asset was completed on 15/12/2015 i.e. after due date u/s 139(1) of the Act. The Assessing Officer held that no fresh investment has been made on purchase of property or construction thereon on or before 30/09/2015. The Assessing Officer held that it was mandatory as per section 54(2) of the Act to deposit whole capital gain in capital gains account but the assessee failed to do so. In view of these facts, the Assessing Officer held that assessee is not eligible for deduction u/s 54F of the Act. Aggrieved, the assessee carried the matter in appeal before the learned CIT(A) who dismissed the appeal of the assessee by observing as under:
“In the present case, the appellant did not deposit the entire net consideration received on transfer of original asset on which LTCG arose neither in new residential property nor deposited the unutilized portion of net consideration on transfer of original asset with Capital Gain account with Bank or as stipulated by Central Government before the due date of filing of return u/s 139(1) of the Act.
The appellant cannot get benefit of section 54F on the unutilized amount as the said amount has not been invested by the appellant in purchase/construction of new residential house till the due date of filing of return u/s 139(1) of the Act nor the same has been deposited by the appellant in Capital Gain Account with Bank as stipulated u/s 54F(4) before the due date of filing of return u/s 139(1) of the Act. The above facts show that the appellant has violated the provisions of 54F of the Act.
Reliance is also placed on the judgment relied upon by the Assessing Officer in assessment order namely:
– Hon’ble Bombay High Court in Humayun Suleman Merchant vs. CCIT Mumbai reported in 242 Taxman 189 (Bom)
– Hon’ble ITAT Mumbai in Smt. Basaribabu Mohd. Rafiq Latiwal ITO reported in 164 ITD 346 (2017)
In the above judgments, the claim of exemption u/s 54F was denied on similar facts.
As discussed in para 2, the Net Capital Gain was not even kept by the appellant in her own bank account till the fresh investment in property was made. He transferred an amount of Rs.1,10,00,000/- to M/s Kiran Enterprises from 09.04.2015 to 27.12.2015 after the said sale of property on 09.04.2014 for Rs.1,03,48,700/- This sum of Rs.94,50,000/- was received back by the appellant from M/s Kiran Enterprises on five dates starting from 25.10.2015 to 31.03.2016. In the meantime, the appellant purchased the new flat on 15.12.2015.
The above facts show that the appellant did not deposit the Net Capital Gain in Capital Gains Account with Schedule Bank or as stipulated by Central Government till the due date of filing return u/s 139(1) of the Act. Further, the appellant did not purchase the new property till the due date of filing return u/s 139(1) of the Act.
In view of the above facts and judgements the addition of Rs.87,58,620/- made by the AO is upheld. Grounds of appeal no. 1 and 2 are dismissed.”
3. The assessee is aggrieved with the order dated 31/10/2019 passed by learned CIT(A) and has filed appeal before the Income Tax Appellate Tribunal. During the course of hearing learned Counsel for the assessee submitted that the investment in the purchase of new capital asset stood concluded before the filing of the return of income for the relevant assessment year and the denial of exemption u/s 54 of the Act by the Assessing Officer and confirmed by the learned CIT(A) is misplaced. Though the assessee has raised as many as four grounds of appeals but all the ground are argumentative in nature and the main thrust of the learned Counsel for the assessee is that the investment in the purchase of new capital asset stood concluded before the filing of the return of income and therefore, the capital gains ought to have been treated as exempt. Learned D.R. for Revenue supported the orders of the authorities below.
4. We have heard the rival parties and have gone through the material placed on record. As per sub section (2) of section 54, the amount of the capital gain which is not appropriated by the assessee towards the purchase of the new asset made within one year from the date on which the transfer of the original asset took place, or which is not utilised by him for the purchase or construction of the new asset before the date of furnishing the return of income under section 139, shall be deposited by him before furnishing such return in an account in any scheduled bank. But in the present case in hand, the assessee did not deposit the net consideration received on transfer of original asset on which Long Term Capital Gain arose neither in new residential property nor deposited the unutilized portion of net consideration in capital gain account before the due date of filing of return u/s 139(1) of the Act. The Assessing Officer found that on examination of capital account of assessee in the books of Kiran Enterprises, it has been found that total sum of Rs.1,10,00,000/- was transferred to the firm and Rs.94,50,000/- was received back from the firm on different dates. This also shows that the amount of capital gain has even not remained in the savings account of the assessee as the same was transferred to the firm. The above fact shows that neither the assessee deposited the net capital gain in capital gains account with scheduled bank nor purchased the new property till the due date of filing return u/s 139(1) of the Act. In view of the facts and circumstances of the present case, the addition of Rs.87,58,620/- made by the Assessing Officer and confirmed by learned CIT(A) is upheld.
5. In the result, the appeal of the assessee stands dismissed.
(Order pronounced in the open court on 03/01/2025)
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