2019 (9) TMI 1234 - AT - Income Tax

Tribunal sets aside assessment order for non-compliance with Section 54(2)

The Tribunal upheld the Principal Commissioner's order under Section 263, setting aside the assessment order and directing the reassessment of the ... Revision u/s 263 - AO allowing deduction under section 54(1) - till the actual date of filing of return of income by the assessee for the impugned assessment year, the capital gain had not been utilized for purchase of new residential house - HELD THAT:- Though, the provision of section 54(2) of the Act encompasses due date of filing of return of income not only as per section 139(1) but even section 139(4) and 139(5) of the Act, however, the condition of section 54(2) of the Act would stand satisfied if the assessee invests the unutilized capital gain in purchase of new house property before the actual date of filing of return of income for the subject assessment year even within the extended time permitted under section 139(4) and 139(5) of the Act. That being the case, it cannot be said that the decision of the Assessing Officer is in accordance with the legal position prevailing at the relevant point of time. The other decisions cited by the learned Authorised Representative challenging the validity of exercise of jurisdiction under section 263 of the Act, would not help the assessee in view of the specific fact involved in the present case. Thus, on overall consideration of facts and the decision of the Hon'ble Jurisdictional High Court in Humayun Suleman Merchant [2016 (9) TMI 70 - BOMBAY HIGH COURT] we have no hesitation in holding that learned Principal Commissioner has correctly exercised his power under section 263 of the Act to revise the impugned assessment order. Accordingly, we uphold the order passed under section 263 of the Act by dismissing the grounds raised by the assessee. Issues Involved:1. Eligibility of the assessee to claim deduction under Section 54 of the Income Tax Act, 1961.2. Compliance with the conditions under Section 54(2) of the Income Tax Act, 1961.3. Validity of the Principal Commissioner’s exercise of jurisdiction under Section 263 of the Income Tax Act, 1961.Issue-wise Detailed Analysis:1. Eligibility of the assessee to claim deduction under Section 54 of the Income Tax Act, 1961:The assessee filed a return of income declaring a total income of Rs. 32,07,210 for the assessment year 2014-15. The assessee sold a residential flat for Rs. 30 lakh, which the stamp duty authority valued at Rs. 46,24,848. After claiming indexation benefits, the long-term capital gain amounted to Rs. 30,08,473. The assessee claimed a deduction under Section 54 for purchasing a new residential flat worth Rs. 45,38,000. However, the Principal Commissioner observed that the assessee did not utilize the capital gain for purchasing a new house before the due date of filing the return under Section 139(1) and did not deposit the unutilized capital gain in a capital gain account scheme as required by Section 54(2). Consequently, the Principal Commissioner concluded that the assessee was not eligible for the deduction under Section 54(1).2. Compliance with the conditions under Section 54(2) of the Income Tax Act, 1961:The Principal Commissioner noted that the assessee failed to comply with the conditions stipulated in Section 54(2), which mandates that if the capital gain is not utilized for purchasing a new asset before the due date of filing the return under Section 139(1), it must be deposited in a capital gain account scheme. The assessee argued that he was unaware of this requirement and that he had invested the capital gain in purchasing a new house within the extended time limit under Section 139(4). The Tribunal examined various judicial precedents, including decisions from the Gauhati High Court and the Karnataka High Court, which held that the provisions of Section 54(2) encompass the extended time limits under Sections 139(4) and 139(5). However, the Tribunal emphasized that the capital gain must be utilized before the actual date of filing the return of income for the subject assessment year, even within the extended time limits.3. Validity of the Principal Commissioner’s exercise of jurisdiction under Section 263 of the Income Tax Act, 1961:The Principal Commissioner issued a show-cause notice under Section 263, questioning why the assessment order should not be set aside as it was erroneous and prejudicial to the interest of the Revenue. The Tribunal upheld the Principal Commissioner’s jurisdiction under Section 263, noting that the Assessing Officer failed to properly apply the statutory provisions of Section 54 during the assessment proceedings. The Tribunal concluded that the decision of the Assessing Officer to allow the deduction under Section 54 was legally unsustainable as the assessee did not comply with the conditions of Section 54(2). The Tribunal also dismissed the assessee’s contention that the assessment order was in accordance with the prevailing legal position at the time, emphasizing that the legal principle requires the unutilized capital gain to be invested before the actual date of filing the return of income.Conclusion:The Tribunal upheld the Principal Commissioner’s order under Section 263, setting aside the assessment order and directing the re-assessment of the assessee’s income. The Tribunal dismissed the assessee’s appeal, concluding that the assessee did not comply with the conditions of Section 54(2), and the assessment order was erroneous and prejudicial to the interest of the Revenue.