Unutilized CGAS withdrawal of Rs. 1 crore taxable only when three-year period expires under Section 54F

The ITAT held that unutilized amount of Rs. 1 crore withdrawn from CGAS account cannot be taxed in the year of withdrawal but must be brought to tax only in the year when the three-year period from original asset transfer expires. The assessee transferred capital asset and claimed Section 54F exemption by depositing proceeds in CGAS. Since the three-year period expired in AY 2019-20, the withdrawn amount could only be taxed in that year, not in the year under consideration. The lower authorities' decision to tax the amount as LTCG under Section 45 in the current year was incorrect. Appeal decided in favor of assessee.

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Issues Involved:

1. Determination of assessed income versus returned income.
2. Addition of Rs. 1 crore under Section 54F(4) of the Income-tax Act.
3. Alleged double addition of Rs. 1 crore due to withdrawal from the Capital Gain Account Scheme.

Detailed Analysis:

1. Determination of Assessed Income Versus Returned Income:

The assessee filed a return of income for the assessment year 2018-19 declaring an income of Rs. 2,31,69,120/-. The Assessing Officer (A.O) determined the assessed income at Rs. 3,31,69,120/-. The discrepancy arose due to the A.O's reworking of the Long Term Capital Gain (LTCG) by adding Rs. 1 crore, which was withdrawn from the Capital Gain Account Scheme (CGAS) in the succeeding year but taxed in the year under consideration. The A.O believed the withdrawals indicated an attempt to defer tax liability on LTCG, thus leading to the increased assessed income.

2. Addition of Rs. 1 Crore Under Section 54F(4) of the Income-tax Act:

The core issue was whether the Rs. 1 crore withdrawn from the CGAS in the succeeding year (A.Y. 2019-20) should be taxed in the assessment year 2018-19. The A.O added Rs. 1 crore to the income for A.Y. 2018-19, arguing that the unutilized amount should be taxed when the three-year period from the transfer of the original asset expires, as per Section 54F(4). The CIT(Appeals) upheld this addition, stating that the entire unutilized amount should be taxed in A.Y. 2018-19, not in A.Y. 2019-20, aligning with the legislative intent and provisions of the Act.

3. Alleged Double Addition of Rs. 1 Crore Due to Withdrawal from the Capital Gain Account Scheme:

The assessee contended that the addition of Rs. 1 crore resulted in double taxation since the amount was already taxed in A.Y. 2019-20. The CIT(Appeals) dismissed this claim, arguing that the correct assessment year for taxing the unutilized amount was A.Y. 2018-19, as per Section 54F(4). The Tribunal, however, disagreed with the lower authorities, noting that the amount should be taxed in the year the three-year period expires, which is A.Y. 2019-20, according to the "1st proviso" to Section 54F(4). Thus, the Tribunal vacated the addition of Rs. 1 crore to the income for A.Y. 2018-19.

Conclusion:

The Tribunal allowed the appeal, determining that the Rs. 1 crore withdrawn from the CGAS should be taxed in A.Y. 2019-20, not A.Y. 2018-19, as per the statutory provisions. The grounds of appeal regarding the addition under Section 54F(4) were allowed, while other general grounds were dismissed as not pressed. The Tribunal's decision emphasized adherence to the specific provisions of the Income-tax Act, particularly the timing of taxing unutilized amounts in CGAS.

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