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The Assistant Commis... v. Smt. Umayal Annamala...

Income Tax Appellate Tribunal

Apr 22, 2016

Judgment

Subsequent
References

CaseIQ

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Structured Summary of the Tribunal Opinion — ITA No. 415/2015 & CO.43/2015

Factual and Procedural Background

This is an appeal by the Revenue and a cross-objection by the assessee against a common order of the Commissioner of Income Tax (Appeals) in ITA No. 415/2015 & CO.43/2015 for the assessment year 2005-06. The impugned order was dated 30.10.2014 and relates to assessments completed under the provisions referred to in the opinion.

Brief factual matrix (as recorded in the opinion):

The assessee is an individual with income from salary, house property and interest. A return was filed on 17.03.2006 showing total income of Rs. 5,28,430.
The Assessing Officer (AO) issued a notice under section 148 of the Income Tax Act, and an assessment was completed on 04.12.2009 determining total income at Rs. 9,65,440.
The AO observed that the assessee sold shares of CTL for Rs. 81,63,440 and claimed exemptions: under section 54EC (NABARD bonds claimed for Rs. 10,00,000) and under section 54F for the balance by purported investment in construction/acquisition of a flat in Bangalore.
The AO initially found lack of proof for the NABARD investment and non-disclosure of the flat's value in the balance sheet as of 31.03.2005, believed income had escaped assessment and proceeded under section 148.
In response, the assessee produced evidence (letter dated 13.07.2012) including proof of NABARD capital gains bond investment and copies of sale and construction agreements for Flat No.4B, Bearyers Acacia Lakeview, Bangalore.
The AO noted the agreement date of 13.12.2006 and that the assessee had not deposited amounts under the Capital Gains Account Scheme before the due date under section 139(1); AO therefore denied exemption under section 54F and assessed total income at Rs. 54,48,750.
The assessee appealed to the Commissioner of Income Tax (Appeals) (CIT(A)). The assessee contested reopening (alleging change of opinion based on audit objection) and argued construction/acquisition was completed within the three-year period; the assessee also relied on evidence of earlier payments/advances and disclosure in balance sheet as of 31.03.2008.
The CIT(A) examined the validity of the reopening (section 148) and the merits of the section 54F claim. While upholding that the AO had sufficient reasons to reopen (because evidence was not on record earlier), the CIT(A) ultimately allowed the assessee relief on the section 54F claim by holding that a substantial part of the sale consideration had been utilized before the extended date of filing the return (section 139(4) due date) and directed the AO to recalculate the allowable deduction proportionately as on 31.03.2007.
The Revenue filed an appeal to the Tribunal; the assessee filed a cross-objection challenging the reassessment as bad in law (change of opinion) and asserting compliance with audit objections via evidence.
The Tribunal heard the parties, considered submissions and judicial decisions cited, and pronounced the order on 22 April 2016 at Chennai.

Legal Issues Presented

Whether the assessee is eligible for deduction under section 54F of the Income Tax Act where a substantial part of the sale consideration was utilized for acquisition/construction of a new residential property before the extended date of filing return under section 139(4), particularly when the main conditions of section 54F(1) are fulfilled.
Whether the reassessment proceedings initiated under section 148 (on the basis of an audit objection) were valid or amounted to an impermissible change of opinion.
Whether, for claiming exemption under the capital gains provisions (specifically section 54F), it was mandatory that the amount be deposited into the Capital Gains Account Scheme before the due date of filing return under section 139(1) (as argued by the Revenue).

Arguments of the Parties

Revenue / Departmental Representative

Contended that the CIT(A) erred in deleting the addition and allowing relief under section 54F.
Argued that the assessee utilized the net sale consideration after the due date of filing the return under section 139(1) and did not deposit amounts into the Capital Gains Account Scheme before that due date; therefore exemption under section 54F should be denied.
Maintained that as per the capital gains scheme, the amount should be deposited under the Capital Gain Account Scheme before the due date of return under section 139(1) to claim exemption.

Assessee / Authorised Representative

Challenged validity of the reassessment on the ground that reopening was based on an audit objection and amounted to change of opinion, which is not permissible.
Stated that substantial investment/advances were made before the extended date of filing the return (section 139(4)) and the construction/purchase was completed within three years from the date of transfer; therefore the conditions of section 54F(1) were satisfied.
Produced proof of NABARD bond investment (section 54EC) and sale/construction agreements to substantiate claim for exemptions.
Relied on the CIT(A)'s order and judicial precedents to support the claim that utilization of substantial funds before the extended filing date satisfies the protective intent of the capital-gains exemption provisions.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
CIT vs Jagtar Singh Chaw [2013] 215 Taxman 154 (High Court of Punjab & Haryana)	Holds that capital gains tax is not leviable when substantial part of sale consideration for purchase of residential property was utilized before the extended period for filing return (section 139(4)).	The CIT(A) relied on this decision to support the proposition that utilization of substantial funds before the extended filing date suffices to claim exemption; the Tribunal accepted this line in affirming the CIT(A)'s direction to proportionately allow deduction.
Anil Kumar Aurora [2013] 37 CCH 221 (ITAT, A Bench — Mumbai)	Similar view as above: substantial utilization before extended period supports non-chargeability of capital gains.	CIT(A) cited this Tribunal decision to reinforce the principle; the Tribunal considered it supportive of allowing proportionate relief where substantial investment was made before the extended date.
Rajesh Kumar Jalan, 286 ITR 274 (Gauhati High Court)	Held that capital gains is not chargeable where the new property was purchased before the extended due date of filing return under section 139(4) for the purpose of claiming deduction under section 54.	CIT(A) relied on this High Court authority to justify treating utilization before the extended date as sufficient compliance; Tribunal accepted this approach in upholding the order.
ITA Nos. cited before the jurisdictional Tribunal: Madhuvanprasad (ITA No.2485/Mds/2004) and K.S. Ramachandran (ITA No.941/Mds/2011)	Tribunal decisions indicating that utilization of funds in constructing residential house within stipulated period should be treated as sufficient compliance for Sec.54/54F purposes.	CIT(A) relied on these jurisdictional Tribunal precedents to construe Sec.54F liberally in the facts of the case; the Tribunal agreed with that approach.

Court's Reasoning and Analysis

The Tribunal's analysis proceeded in multiple steps closely tied to the factual chronology and statutory provisions:

Procedural step: The Tribunal first addressed a 47-day delay in filing the appeal by the Department. Having heard the affidavit explaining the delay and noting no serious objection by the assessee's representative, the Tribunal exercised its discretion to condone the delay as there was sufficient and reasonable cause.
Reassessment validity: The Tribunal examined the basis for reopening the assessment under section 148. It noted the CIT(A)'s finding that the AO had recorded reasons for reopening due to absence of supporting evidence on record earlier (i.e., the information regarding NABARD bonds and the purchase/construction of the property was not supported by documentary evidence in the earlier proceedings). The Tribunal accepted the CIT(A)'s conclusion that the AO had applied his mind and had sufficient reasons for reopening; accordingly, the Tribunal did not find the reassessment to be invalid as a mere change of opinion.
Statutory framework for deduction: The Tribunal set out the text of section 54F(1) (as reproduced in the opinion) and identified the relevant temporal milestones in the assessee's case: date of transfer (14.02.2005), actual filing of return (17.03.2006), original due date (31.07.2005), extended due date for belated return under section 139(4) (31.03.2007), and possession of the new property (15.12.2007).
Factual application of Sec. 54F: The Tribunal accepted the CIT(A)'s factual finding that Rs. 68,00,000 had been spent on purchase/construction of the property by 31.03.2007 (the extended date). Since possession was taken on 15.12.2007 (within three years of transfer of the original asset on 14.02.2005), the Tribunal concluded that the assessee had satisfied the temporal requirements of section 54F(1) insofar as acquisition/construction within the statutory period is concerned.
Role of Capital Gains Account Scheme (CGAS): The Revenue emphasized that amounts should have been deposited in the Capital Gains Account Scheme before the due date of filing return under section 139(1). The Tribunal noted that while the assessee did not deposit in CGAS before section 139(1) due date, substantial part of the sale consideration had been utilized for the new asset before the extended date of filing under section 139(4). The Tribunal treated the provisions of section 54F as beneficial and to be construed liberally with regard to limitation, focusing on actual utilization and evidentiary proof of investment.
Reliance on precedents: The Tribunal accepted the CIT(A)'s reliance on several judicial decisions (High Court and Tribunal decisions) holding that substantial utilization of sale proceeds before the extended filing date supports the claim of exemption under capital gains provisions. On that basis, the Tribunal upheld the direction to the AO to recalculate the allowable deduction proportionate to the investment made by 31.03.2007.
Balancing of issues: The Tribunal balanced two distinct questions — the procedural validity of reassessment and the substantive entitlement to exemption under section 54F. It agreed with the CIT(A) that reassessment was valid (no infirmity), and on the substantive question accepted that the assessee satisfied the conditions of section 54F(1) sufficiently to merit proportionate relief.

Holding and Implications

Core Ruling: The Tribunal dismissed the Revenue's appeal and dismissed the assessee's cross-objection; it upheld the Commissioner of Income Tax (Appeals) order which directed the Assessing Officer to grant deduction under section 54F proportionate to the investment made by the assessee as on 31.03.2007.

Consequences and practical effects:

The AO is directed to recalculate the allowable deduction under section 54F based on the proportion of the sale consideration that was invested in the new residential property by 31.03.2007 (Rs. 68,00,000 as found by the CIT(A)).
The Tribunal upheld the validity of reassessment proceedings (i.e., reopening under section 148) on the basis that the AO had recorded sufficient reasons because relevant evidence was not available on record during the earlier assessment; the assessee's contention that reopening amounted to change of opinion was rejected.
No broader precedent beyond the reliance on cited authorities was asserted by the Tribunal; the decision affirms the approach of construing beneficial capital-gains provisions liberally when substantial utilization of proceeds is shown before the extended filing date. The opinion does not state that it lays down a new legal principle; it applies existing authorities to the facts.

Other Case Information

Order pronounced on Friday, the 22nd day of April, 2016, at Chennai. Bench members appearing in the record include (G. Pavan Kumar) — Judicial Member and (Chandra Poojari) — Accountant Member.

Disposition

Result: Appeal of the Revenue dismissed; Cross-objection of the assessee dismissed. The CIT(A)'s directions on recalculation of deduction under section 54F are to be implemented by the Assessing Officer.

Show all summary ...

PER G. PAVAN KUMAR, JUDICIAL MEMBER: The appeal of the Revenue and Cross Objection by the assessee are directed against common order of the Commissioner of ITA No. 415/2015 & CO.43/2015 :- 2 -: Income-tax (Appeals)-VI, Chennai for the assessment year 2005-06 in ITA No.709/13-14/A-VI, dt 30.10.2014 passed u/s.143(3) and 250 of the Income Tax Act, 1961 (herein after referred to as the Act).

2. There is a delay of 47 days in filing the appeal by the Department. At the time of hearing the ld. Departmental Representative has filed an affidavit explaining the reasons for delay and the ld. AR has no serious objections for condonation of delay. After hearing the submissions, we are satisfied with sufficient and reasonable cause for filing the appeal belatedly and we therefore condone the delay and admit the appeal.

3. The Brief facts of the case that the assessee is an individual having income from salary, income from house property and interest income and filed return of income on 17.03.2006 with total income of >5,28,430/-. The assessee made investments during the financial year and notice was issued u/s.148 of the Act and assessment was completed on 04.12.2009 determining total income at >9,65,440/-. Subsequently, the Assessing Officer found that assessee has sold shares of CTL amounting to >81,63,440/- and claimed exemption u/s.54EC and >10,00,000/- by investing in NABARD bonds and for balance claimed exemption u/s.54F by utilizing the funds in the ITA No. 415/2015 & CO.43/2015 :- 3 -: construction of flat in Bangalore. The ld.Assessing Officer found the assessee has not submitted proof of investment in bond >10,00,000/- and also not disclosed value of flat >72,00,000/- in the balance sheet as on 31.03.2005 and believed that the income chargeable to tax has escaped assessment and issued notice u/s148 of the Act. In compliance to notice, the assessee filed letter dated 13.07.2012 to teat original return of income filed for assessment purpose. The ld. Authorised Representative of the assessee appeared and furnished proof of investment of >10,00,000/- in NABARD Capital Gains Bond and explained that the assessee claimed exemption u/s.54F of the Act by investing in residential property. The ld. Authorised Representative also produced copies of sale agreement and construction agreement of flat No.4B, Bearyers Acacia Lakeview, Bangalore. On perusal of the agreements, the Assessing Officer found that the agreement was entered on 13.12.2006 and not complied capital gain accounts scheme before due date u/s..139(1) of the Act and alleged the said investment of >72,00,000/- in the property after due date and observed that assessee has utilized net consideration only after due date of filing of return u/s.139(1) of the Act and denied exemption u/s.54F of the Act and assessed total income of >54,48,750/- and raised demand. Aggrieved by the order, the assessee filed an appeal before the Commissioner of Income Tax (Appeals). ITA No. 415/2015 & CO.43/2015 :- 4 -:

4. In the appellate proceedings, the ld. Authorised Representative reiterated the submissions made in assessment proceedings and challenged the validity of reopening of assessment as reopening was based on Audit objection and alleged the order of re- assessment is bad in law. The ld. Authorised Representative further argued that the Assessing Officer is not correct in observing that the assessee has not invested the net consideration in the capital gain scheme but assessee has completed the construction of the residential property within the stipulated time and disclosed in Balance Sheet as on 31.03.2008. The assessee advanced money at initial stage and entered into agreement only in 2006 and completed construction within three years from the date of transfer of property which in not disputed by the Assessing Officer except that amount was not deposited in Capital Gain Scheme 1988 before due date u/sec. 139(1) of the Act. The ld. Commissioner of Income Tax (Appeals) perused the grounds and considered the findings of the Assessing Officer and submissions made in the appellate proceedings on the ground of validity of reassessment proceedings, the Commissioner of Income Tax (Appeals) has dealt on the reasons for issue of notice u/s.148 of the Act as there was no evidence in earlier assessment to prove the assessment record is complete and discussed in para 3 & 4 of his order as reasons being genuine and there was a scope for ITA No. 415/2015 & CO.43/2015 :- 5 -: escapement of income. The ld. Assessing Officer has applied his mind carefully before recording reasons and issued notice u/s.148 of the Act as the information of investment in NABARD capital bond u/s.54EC of the Act and the purchase and construction of property are not supported with evidence. Therefore the ld. Assessing Officer has sufficient reasons and re-opening of assessment is in order and confirmed the order of the Assessing Officer and rejected the assessee ground.

5. On the grounds of claim for deduction u/s.54F of the Act, the assessee has invested the net consideration in construction of residential property only after due date of filing of return. The ld. Authorised Representative filed written submissions dated 27.10.2014 supporting the claim of deduction u/s.54F of the Act alongwith legal provisions and judicial decisions. The ld. Commissioner of Income Tax (Appeals) has considered submissions at page 5 to 9 of his order, with findings and factual aspects of investments, found that the assessee is an individual and due date of filing of return of income is 31.07.2005 and date for filing belated return u/s.139(4) of the Act being 31.03.2007 and the assessee has spent >68,00,000/- for purchasing and construction of the property till 31.03.2007. On comparison with the sale consideration of >81,63,440/- the assessee ITA No. 415/2015 & CO.43/2015 :- 6 -: has utilized >68,00,000/- before the extended date of filing of return u/s.139(4) of the Act. The property was sold on 14.02.2005 and new residential property was constructed and possession was taken on 15.12.2007, which is within three years period from the date of transfer of asset. The ld. Commissioner of Income Tax (Appeals) found that substantial part of sale consideration was utilized for acquisition of new asset within the stipulated extended time and the assessee has complied with the basic conditions u/s. 54F(1) of the Act. With these findings, ld. Commissioner of Income Tax (Appeals) observed at para 5.2.1 of his order as under:- 5.2.1 I have considered the findings of the AO and also submissions made by the AR of the appellant and also perused the copy of the judgements filed with the submission. In the instant case, the due date of filing return of income u/s 139(1) of the IT Act was 31.07.2005 and due date for filing of return of income u/s 139(4) of the IT Act was 31.03.2007. The appellant has spent 68 lakhs till 31.03.2007 for the purpose of purchasing house property. Therefore, out of the total sale consideration of Rs.81,63,440/-, the appellant has utilized .68 lakhs before the extended date of filing of return of income u/s 139(4) of the IT Act. Possession of new property was taken on 15-12-2007 within period of 3 years from date of transfer of original asset i.e on 14-02-2005. Thus, the appellant has purchased the property within the stipulated period u/s 54F(1) of the IT Act. The issue involved in the appeal is whether the assessee is eligible for deduction u/s 54F of the I.T Act in a case where substantial part of sale consideration was utilized for acquisition of new asset within extended date of filing of return of income u/s 139(4) of the I.T Act 1961 particularly when main conditions u/s 54F(1) were fulfilled. The Hon'ble High Court of Punjab & Haryana in the case of CIT vs Jagtar Singh Chaw!a reported in [2013] 215 Taxman 154 held that the assessee is not liable for payment of capital gains tax when substantial amount of sales consideration for purchase of ITA No. 415/2015 & CO.43/2015 :- 7 -: residential property was made before the extended period of limitation of filing of return of income i.e. 139(4) of the IT Act. The Ho'ble ITAT A Bench in the case of Anil Kumar Aurora reported in [2013] 37 CCH 221 (Mum) also held the similar view. The Hon'ble Gauhati High Court in the case of Rajesh Kumar Jalan reported in 286 ITR 274 held that the capital gains is not chargeable when the appellant has purchased the new property before the extended due date of filing of return u/s 139(4) of the IT Act for the purpose of claim of deduction u/s 54 of the IT Act. Utilization of the funds in constructing the residential house within the stipulated period should be treated as sufficient compliance of Sec. 54 of the IT Act in the cases decided by Jurisdictional Tribunal in the case of Madhuvanprasad in ITA No.2485/Mds/2004 and K.S.Ramachandran in ITA No.941/Mds/2011. The wording of the Sec.54 & 54F in the manner of utilization of the funds are similar. Therefore, since in this case RS.68 lakhs was utilized by the appellant before 31.03.2007 i.e. the due date of filing of return of income u/s 139(4) of the IT Act in the case of the appellant, the AO shall consider the claim of granting the deduction proportionate to the investment in the new property as on 31.03.2007. Therefore, the AO is directed to recalculate the allowable deduction as per the directions of the above and grant relief accordingly. and deleted the addition. Aggrieved by the order, the Revenue has assailed an appeal before Tribunal.

6. Before us, the ld. Departmental Representative reiterated the findings of the Assessing Officer and argued that the Commissioner of Income Tax (Appeals) erred in deleting the addition and also failed to appreciate that the assessee has utilized net consideration after due date of filing of return. Further as per capital gain scheme for claiming exemption u/s.54F, the assessee should purchase or construct new asset within three years from the date of transfer of asset and the amount should be deposited under Capital Gain Account ITA No. 415/2015 & CO.43/2015 :- 8 -: Scheme before due date of return u/s.139(1) of the Act. Therefore, action of the Commissioner of Income Tax (Appeals) in deleting the addition is not in accordance with law.

7. Contra, the ld. Authorised Representative argued that the assessee has passed through the second round of re-assessment as the earlier assessment was completed u/s.143(3) of the Act r.w.s 147 on 4.12.2009 and on same issue with change of opinion, the Assessing Officer has denied the exemption u/s.54F on the ground that assessee has not utilized the net sale consideration before due date of filing of return of income and the assessee has substainted with evidence of investments before the lower authorities and relied on the order of Commissioner of Income Tax (Appeals) and prayed for dismissing the appeal.

8. We heard the rival submissions, perused the material on record and judicial decisions cited. The ld. Departmental Representative contention being the assessee though constructed the property by investing, the net sale consideration but not before the due date of return u/s.139(1) of the Act nor said amount was deposited in Capital Gain Account Scheme. The argument of ld. Departmental Representative was in respect of the period of ITA No. 415/2015 & CO.43/2015 :- 9 -: construction and there is no dispute on investment of the net consideration in residential property and provision of Sec. 54F(1) of the Act are as under:- 54F. (1) [Subject to the provisions of sub-section (4), where, in the case of an assessee being an individual or a Hindu undivided family], the capital gain arises from the transfer of any long-term capital asset, not being a residential house (hereafter in this section referred to as the original asset), and the assessee has, within a period of one year before or [two years] after the date on which the transfer took place purchased, or has within a period of three years after that date [constructed, a residential house] (hereafter in this section referred to as the new asset), the capital gain shall be dealt with in accordance with the following provisions of this section, that is to say, (a) if the cost of the new asset is not less than the net consideration in respect of the original asset, the whole of such capital gain shall not be charged under section 45 ; (b) if the cost of the new asset is less than the net consideration in respect of the original asset, so much of the capital gain as bears to the whole of the capital gain the same proportion as the cost of the new asset bears to the net consideration, shall not be charged under section 45: [Provided that nothing contained in this sub-section shall apply where (a) the assessee,

(i) owns more than one residential house, other than the new asset, on the date of transfer of the original asset; or

(ii) purchases any residential house, other than the new asset, within a period of one year after the date of transfer of the original asset; or

(iii) constructs any residential house, other than the new asset, within a period of three years after the date of transfer of the original asset; and (b) the income from such residential house, other than the one residential house owned on the date of transfer of the original asset, is chargeable under the head Income from house property.] ITA No. 415/2015 & CO.43/2015 :- 10 -: The assessee has complied the provisions considering the dates as under:-

(i) Date of transfer of original asset : 14.02.2005.

(ii) The date of filing of return : 17.03.2006.

(iii) Due date of return for the Assessment year 2005-06 : 31.07.2005.

(iv) Due date of filing belated return : 31.03.2007.

(v) Possession of the property : 15.12.2007. On considering the provisions of law and facts of the case, the assessee has invested >68,00,000/- before due date of filing belated return i.e. 31.03.2007 and took the possession as per the findings of the Commissioner of Income Tax (Appeals) on 15.12.2007, being within three years from the date of transfer/sale of original asset being 14.02.2005. The assessee has not invested in Capital Gain Account Scheme before 139(1) of the Act but complied with the conditions u/s.54F(1) of the Act by purchasing and construction of residential property within three years from the date of transfer of original asset which is not disputed in the assessment proceedings or in appellate proceedings. The provisions of Sec. 54F are beneficial provisions and are to be considered liberally in the aspect of limitation period. But the investment in residential property is must which the assessee has proved with evidence and complied before the lower authorities. The ld. Commissioner of Income Tax (Appeals) relied on the legal provision and submissions of the assessee exhaustively with judicial decisions. Considering the factual aspects, genuiness of the ITA No. 415/2015 & CO.43/2015 :- 11 -: transactions and beneficial aspects of the provisions, we are of the opinion that the Commissioner of Income Tax (Appeals) has rightly construed the findings and the explanation of the assessee with observation in his order and allowed the deduction u/s.54F of the Act. Therefore, we are not inclined to interfere with the order of Commissioner of Income Tax (Appeals) and dismiss the ground of the Revenue.

9. The assessee has filed Cross objection and submitted that the reassessment proceedings are bad in law and erroneous as assessment was reopened only on audit objection, which amounts to change of opinion which is not permissible. The assessee complied the audit objections by submitting the explanation with proof of investments u/s.54EC of the Act and assessee hold only one residential property on the date of sale and other properties are commercial properties.

10. We find that the reassessment have been initiated only because of non availability of evidence on record. The ld. Commissioner of Income Tax (Appeals) has considered the factual aspects, objections and findings and relied on judicial decisions and rejected the assessees contention and we do not find any infirmity in ITA No. 415/2015 & CO.43/2015 :- 12 -: the order of Commissioner of Income Tax (Appeals) on the ground of validality of reassessment proceedings and uphold the same. The C.O. filed by the assessee is dismissed.

11. In the result, the appeal of the Revenue and C.O. of the assessee are dismissed. Order pronounced on Friday, the 22nd day of April, 2016, at Chennai. Sd/- Sd/- ( ) (CHANDRA POOJARI) /ACCOUNTANT MEMBER (. ) (G. PAVAN KUMAR) /JUDICIAL MEMBER /Chennai 0/Dated:22.04.2016 ( *"23 43/Copy to:

1. '/Appellant 3. 5 ()/CIT(A) 5. 3 *""

2. *+'/Respondent 4. 5/CIT 6. $ /GF