2017 (6) TMI 439 - AT - Income Tax

ITAT affirms CIT(A)'s ruling for assessee in Section 54 dispute. Cheque issuance before return filing date meets payment requirement.

The ITAT upheld the CIT(A)'s decision, ruling in favor of the assessee in a dispute over Section 54 of the Income Tax Act. The Assessing Officer's ... Eligibility to relief u/s. 54 - disallowance on the ground that payment for purchase of new house property has not been made within one year from the date of transfer of original asset - Held that:- the provisions of section 54(1) allow purchase of new house within two years from the date of transfer of asset and hence the view taken by the Assessing Officer is not in accordance with the law and hence the same is liable to be quashed. Refereeing to the contention of the assessee that he had issued cheques on the date of agreement itself i.e. 26.7.2012, which is before the date of furnishing of return of income. However those cheques have been encashed by the builder belatedly and hence the assessee should not be penalized for that and that once cheques have been issued, assessee’s liability gets fulfilled and the same constitute utilization of sale proceeds of the old house, we find merit in the submissions of the assessee. There is not dispute that the assessee has issued cheques to the seller of house property on 26.7.2012, which is prior to the date of furnishing of return of income of the instant year. Accordingly, we are of the view that there is no requirement to comply with the provisions of section 54(2) of the Act in the facts and circumstances of the case. - Decided against revenue. Issues:1. Interpretation of Section 54 of the Income Tax Act regarding exemption on capital gains for the purchase of a new residential property.2. Compliance with the time limits specified under Section 54 for investment in a new house.3. Validity of the Assessing Officer's decision to restrict the deduction under Section 54 of the Act.Analysis:1. The case involved a dispute over the interpretation of Section 54 of the Income Tax Act, which provides for exemption on capital gains when investing in a new residential property. The Assessing Officer restricted the deduction claimed by the assessee under this section based on the timing of payment for the new house in relation to the sale of the old property.2. The Assessing Officer contended that the assessee did not comply with the time limits specified under Section 54 for investment in a new house. The AO argued that the payment for the new house should have been made within one year from the date of sale of the old property. However, the learned CIT(A) observed that the assessee had purchased the new house and paid the consideration within two years from the date of transfer of the original asset, which was in accordance with the provisions of Section 54.3. The Assessing Officer allowed a partial deduction under Section 54 and disallowed a portion of the claim based on the timing of payment for the new house. However, the ITAT held that the AO's decision was not in accordance with the law as Section 54 allows for the purchase of a new house within two years from the date of transfer of the asset. The Tribunal also considered the contention that issuing cheques before the due date of filing the return fulfilled the assessee's liability, even if the cheques were encashed later.4. The ITAT upheld the decision of the learned CIT(A) and dismissed the appeal filed by the Revenue, concluding that the assessee had fulfilled the requirements of Section 54 of the Act by purchasing the new house and making the payment within the specified time frame. The Tribunal found no infirmity in the decision and ruled in favor of the assessee.This detailed analysis highlights the key legal issues, interpretations of relevant provisions, and the final decision of the ITAT in the case.