2015 (3) TMI 641 - AT - Income Tax

Tribunal confirms exemption claim under Section 54 for full investment of capital gains.

The Tribunal upheld the CIT (Appeals)'s decision, dismissing the Revenue's appeal and the assessee's cross objections for Assessment Year 2008-09. The ... Capital gains - exemption under Section 54F - use of sale consideration for purchase or construction of new residential asset - Capital Gains Account Scheme deposit requirement - due date for filing return under Section 139(1) and extended date under Section 139(4) - transfer by relinquishmentTransfer by relinquishment - capital gains - Whether the transfer of the assessee's right in the land occurred in 2007 and is exigible to tax in Assessment Year 2008-09 - HELD THAT: - On the facts the Tribunal accepted that the assessee relinquished his rights by the Memorandum of Agreement dated 12.12.2007 and that the consideration of Rs. 1.25 Crores credited on 18.1.2008 arose from that relinquishment. The Tribunal rejected the alternate contention that the transfer occurred in 1997, noting that the earlier purported sale was not valid and that the real transfer was effected by the 2007 Memorandum. Consequently the consideration is chargeable as capital gains in the year under consideration, i.e., AY 2008-09. [Paras 6]The transfer is held to have occurred on 12.12.2007 by relinquishment and the consideration is taxable as capital gains in AY 2008-09.Exemption under Section 54F - use of sale consideration for purchase or construction of new residential asset - Capital Gains Account Scheme deposit requirement - due date for filing return under Section 139(1) and extended date under Section 139(4) - Whether the assessee is entitled to exemption under Section 54F despite not depositing capital gains in the Capital Gains Account Scheme by the Section 139(1) due date, where the sale consideration was applied to purchase and construction of the new residential property by 31.3.2010 - HELD THAT: - The Tribunal followed the coordinate-bench and High Court precedents relied on by the assessee, including Nipun Mehrotra , Rajesh Kumar Jalan and Fatima Bai , holding that where the sale consideration/capital gains is utilized for purchase or construction of the new asset before the due date for furnishing the return under Section 139(4), the assessee is entitled to exemption under Section 54F. The facts established that the assessee purchased the site on 3.4.2008 and completed construction up to 31.3.2010, thereby utilising the capital gains within the period permissible under Section 139(4). The Tribunal noted that other co-sellers had been allowed the claim by the Department and found revenue had not successfully controverted the CIT(A)'s conclusion. [Paras 6]The assessee's claim for exemption under Section 54F is allowed, since the capital gains were invested in purchase and construction of the new residential property within the period permitted under Section 139(4).Final Conclusion: The Tribunal dismissed the Revenue's appeal and the assessee's cross objections; it held that the transfer took place on 12.12.2007 (chargeable in AY 2008 09) and that the assessee is entitled to exemption under Section 54F as the sale consideration was applied to purchase and construct the new residential property within the time permitted under Section 139(4). Issues Involved:1. Validity of the assessment proceedings initiated under Section 147 of the Income Tax Act, 1961.2. Taxability of the amount received by the assessee on relinquishment of rights in property.3. Eligibility for exemption under Section 54 / 54F of the Income Tax Act, 1961.4. Compliance with the provisions of Section 54(1) and 54(2) regarding the deposit of capital gains in a Capital Gains Account Scheme.Issue-wise Detailed Analysis:1. Validity of the Assessment Proceedings Initiated under Section 147:The Assessing Officer (AO) initiated proceedings under Section 147 upon noticing that the assessee had not filed a return of income for Assessment Year 2008-09, despite receiving an amount of Rs. 5,63,303 during the Financial Year 2007-08. The AO issued a notice under Section 148, to which the assessee responded by filing a return declaring a total income of Rs. 4,90,220.2. Taxability of the Amount Received on Relinquishment of Rights in Property:During the assessment, the AO found a credit of Rs. 1,25,00,000 in the assessee's bank account, which was explained as received for relinquishing rights in property under a Memorandum of Agreement with M/s. Kristal Projects (India) Ltd. The AO proposed to tax this amount as capital gains, but the assessee claimed it was exempt as the property was agricultural land. However, the AO rejected this claim, noting that the property was converted land and not agricultural, and thus taxable as capital gains.3. Eligibility for Exemption under Section 54 / 54F:The assessee claimed exemption under Section 54 / 54F, stating that the entire capital gains were invested in a new residential property. The AO rejected this claim, as the construction commenced after the due date for filing the return under Section 139(1), and the unutilized portion was not deposited in a Capital Gains Account Scheme. The CIT (Appeals) allowed the exemption, following the ITAT Bangalore's decision in Nipun Mehrotra V ACIT and directed the AO to verify the investment made in the new property.4. Compliance with Section 54(1) and 54(2) Provisions:The Revenue contested the CIT (Appeals)'s decision, arguing that the assessee did not comply with the requirement to deposit the capital gains in a Capital Gains Account Scheme before the due date under Section 139(1). The CIT (Appeals) considered the due date under Section 139(4) instead, which the Revenue argued was erroneous.Judgment Analysis:The Tribunal upheld the CIT (Appeals)'s decision, noting that the assessee had invested the entire capital gains in the new property before the due date under Section 139(4). It referenced the co-ordinate bench's decision in Nipun Mehrotra, which allowed exemption if the investment was made before the due date under Section 139(4). The Tribunal found no merit in the Revenue's arguments and dismissed the appeal.Cross Objections by the Assessee:The assessee's cross objections, supporting the CIT (Appeals)'s order, were dismissed as infructuous since the Revenue's appeal was dismissed.Conclusion:Both the Revenue's appeal and the assessee's cross objections for Assessment Year 2008-09 were dismissed. The Tribunal confirmed the CIT (Appeals)'s order allowing the assessee's claim for exemption under Section 54 / 54F, considering the investments made before the due date under Section 139(4).