2024 (9) TMI 273 - AT - Income Tax

Assessee wins section 54 capital gains deduction despite not filing initial return

Seema Heera Versus Assistant Commissioner of Income Tax (OSD) (IT) - 2 (2) (1), Mumbai

The ITAT Mumbai allowed the assessee's appeal regarding capital gains deduction under section 54. The assessee sold immovable property and reinvested the ... Capital gains on sale of immovable property - deduction u/s 54 in respect of investment in new residential house property - assessee did not file the return of income - HELD THAT:- In the present set of facts, it was established by the assessee before the First Appellate Authority that long term capital gain on the sale of immovable property was utilized for the purchase of another residential property within the permissible time and the consideration for the purchase of new house was much more than the amount of sale consideration received by the assessee on transfer of her immovable property on which capital gain had accrued. We direct the AO to recompute the taxable total income of the assessee by taking into consideration the benefit available to her under section 54 of the Act. Accordingly, grounds taken by the assessee on the merits of the case allowed. Issues Involved:1. Jurisdiction and validity of assessment order under Section 144 read with Section 147.2. Validity of reassessment proceedings initiated by notice under Section 148.3. Service of notice under Section 148.4. Addition of Rs. 2,00,00,000 as capital gains on the sale of immovable property.5. Denial of indexed cost of acquisition and treatment of capital gains as long-term capital gains.6. Denial of deduction under Section 54 for investment in new residential house property.7. Initiation of penalty proceedings under Section 274 read with Sections 271 and 271F.8. Levy of interest under Sections 234A, 234B, and 234C.Issue-wise Detailed Analysis:1. Jurisdiction and Validity of Assessment Order under Section 144 read with Section 147:The assessment order dated 26.12.2017 was challenged on the grounds of being 'bad in law and without jurisdiction.' The Tribunal noted that the assessee did not file her return of income for the year under consideration. The case was taken up for scrutiny under Section 147 by issuing a notice under Section 148 on 31.03.2017. The assessment was completed ex parte, treating the entire receipt of Rs. 2,00,00,000 as unexplained short-term capital gain.2. Validity of Reassessment Proceedings Initiated by Notice under Section 148:The reassessment proceedings were initiated by issuing a notice under Section 148, which the assessee claimed was 'bad in law.' The Tribunal observed that the assessee did not comply with the notices issued by the Assessing Officer and did not file her return in response to the notice under Section 148.3. Service of Notice under Section 148:The assessee contended that no valid notice was served under Section 148, rendering the reassessment proceedings null and void. The Tribunal noted that the assessee did not receive the statutory notices as she was residing in Hong Kong, and her address with the Department was outdated.4. Addition of Rs. 2,00,00,000 as Capital Gains on Sale of Immovable Property:The Assessing Officer added Rs. 2,00,00,000 to the total income of the assessee as unexplained short-term capital gain. The Tribunal found that the assessee had sold the property for Rs. 2,00,00,000 and had purchased a new residential flat for Rs. 10,00,00,000 within the stipulated time for claiming deduction under Section 54.5. Denial of Indexed Cost of Acquisition and Treatment of Capital Gains as Long-Term Capital Gains:The CIT(A) did not allow the deduction of the indexed cost of acquisition while computing capital gains and did not treat the gains as long-term capital gains. The Tribunal noted that the assessee had held the property for more than three years, making the gains long-term. The indexed cost of acquisition was Rs. 1,60,82,538, resulting in a long-term capital gain of Rs. 93,17,462.6. Denial of Deduction under Section 54 for Investment in New Residential House Property:The CIT(A) denied the deduction under Section 54 amounting to Rs. 93,17,462 as the assessee did not file her return of income. The Tribunal referred to the Supreme Court's decision in Goetze (India) Ltd vs. CIT, which allows additional claims before appellate authorities. The Tribunal directed the Assessing Officer to recompute the taxable income considering the deduction under Section 54, as the assessee met all conditions for the deduction.7. Initiation of Penalty Proceedings under Section 274 read with Sections 271 and 271F:The Tribunal did not separately adjudicate on the initiation of penalty proceedings as the appeal was allowed on merits.8. Levy of Interest under Sections 234A, 234B, and 234C:The Tribunal did not separately adjudicate on the levy of interest as the appeal was allowed on merits.Conclusion:The Tribunal allowed the appeal of the assessee, directing the Assessing Officer to recompute the taxable total income by considering the benefit available under Section 54. The legal issues raised in grounds No. 1, 2, and 3 were not separately adjudicated as the appeal was allowed on merits. The order was pronounced in the open court on 10 July, 2024.