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January 23, 2023

ITAT permits HUF to claim a Section 54B deduction for agricultural property bought in an individual capacity

by CA Shivam Jaiswal in Income Tax

ITAT permits HUF to claim a Section 54B deduction for agricultural property bought in an individual capacity

Fact and issue of the case

This appeal by the assessee against the order dated 17-12-2018 passed by the Commissioner of Income Tax (Appeals)-5, Pune [‘CIT(A)’] for assessment year 2013-14.

Ground Nos. 1, 8 and 9 are general in nature, hence, require no adjudication.

The ld. AR submits that the assessee is not interested to prosecute ground Nos. 2,

6 and 7. Accordingly, the same are dismissed as not pressed.

Ground Nos. 3 and 4 raised by the assessee are relating to denial of deduction u/s. 54F of the Act.

I note that the assessee is an HUF, derives income from business, capital gains and from other sources. According to the AO, the assessee’s share declared at 21% from profit from the business i.e. housing project under the name and style as “Shriram Residency”. The assessee shown long term capital gain of Rs.1,05,85,572/-. The assessee claimed for Rs.25,00,000/- deduction u/s. 54F of the Act. In support its claim, the assessee furnished copy of agreement for sale dated 19-03-2016 and according to the AO the said agreement for sale was not registered. The assessee contended that he has invested for purchase of a new property and furnished a receipt for Rs.11,00,000/- from M/s. Aaryan Enterprises. According to the AO, the assessee did not invest a new property within stipulated time and denied exemption u/s. 54F of the Act for entire amount of Rs.25,00,000/-. The CIT(A) confirmed the same. Aggrieved by the order of CIT(A) in denying the exemption u/s. 54F of the Act and also for enhancement of income u/s. 54B of the Act, the assessee is before this Tribunal.

Observation of the court

Heard both the sides and perused the material available on record. The ld. AR submits that the assessee declared capital gain in the year under consideration and drew my attention to receipt dated 10-02-2014 at page 126 of the paper book. He argued that the AO denied entire deduction without considering the payment of Rs.11,00,000/- paid within stipulated time. He placed reliance on the decision of Hon’ble High Court of Bombay in the case of Humayun Suleman Merchant reported in 73 taxmann.com 2 (Bombay) and argued that the Hon’ble High Court of Bombay was pleased to allow deduction to the extent paid during the stipulated time as contemplated u/s. 54F of the Act. On careful reading of the decision of Hon’ble High Court of Bombay, I note that a substantial question of law was framed under para 2(b) of the said judgment “Whether on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the Assessing Officer has rightly computed the deduction u/s. 54F of the Income Tax Act, 1961, restricting the investment in the new asset at Rs.35,00,000/- and thus restricting the exemption u/s. 54F of the Act proportionately to the amount invested?” The brief facts before the Hon’ble High Court were that the AO determined net consideration at Rs.75.39 lakhs, but allowed proportionate exemption of Rs.31.55 lakhs which was paid till the filing of return from capital gain in terms of section 54F of the Act. The AO disallowed the balance consideration and brought to tax under the head capital gains on account of assessee’s failure to deposit the unutilized consideration for purchase of new flat in specified bank accounts in accordance with the scheme of Central Government as provided u/s. 54F of the Act. The CIT(A) though recorded assessee obtained possession on 27-01-1997, but however, confirmed the order of AO in allowing proportionate exemption. Having not satisfied with the order of CIT(A), the assessee preferred an appeal before the Tribunal, which was also dismissed against the assessee. Against such order passed by the Tribunal, the assessee preferred an appeal before the Hon’ble High Court of Bombay seeking entire consideration as deduction u/s. 54F of the Act. The Hon’ble High having framed the substantial question of law under para 2(b) above and was pleased to affirm the said question of law under para 2(b) in favour of the Revenue. Therefore, it is clear from the decision of Hon’ble High Court of Bombay, exemption was allowed proportionately to the amount paid before filing of return of income.

In the present case also as rightly conceded by the ld. AR that the assessee made investment in a new property to an extent of Rs.11,00,000/- vide receipt dated 10-02-2014, 27-0402914 and 27-04­2014 which are at pages 126 to 128 of the paper book. It is noted from the perusal of said receipts that Aaryan Enterprises issued receipts dated 10­02-2014 under Receipt No. 0361, dated 27-04-2014 under Receipt No. 0360 and dated 27-04-2014 under Receipt No. 0359 for site at Shreeram Residency, are well before filing of return of income. Admittedly, the assessee’s share at 21% of profit from housing project i.e. Shriram Residency which is evident from para 4 of the assessment order. Therefore, there is no dispute with regard to capital gain arising from housing project i.e. Shriram Residency. Therefore, in my opinion, the assessee is entitled to proportionate deduction to the extent investment made in a new property up to the filing of return of income. I note that the AO disallowed entire claim made u/s. 54F of the Act to the extent of Rs.25,00,000/- which was confirmed by the CIT(A). Therefore, in terms of the decision of Hon’ble High Court of Bombay, that the assessee is entitled to claim proportionate deduction as evident from receipts at pages 126 to 128 of the paper book, which are payments made towards new property and also the said payments were made before filing of return of income. Admittedly, the return of income was filed on 31-07-2014 which is evident from para 1 of the impugned order. Thus, the assessee is entitled to get deduction of Rs.11,00,000/- u/s. 54F of the Act as against the entire disallowance of Rs.25,00,000/-. Thus, ground Nos. 3 and 4 raised by the assessee are allowed.

Ground No. 5 raised by the assessee challenging the action of CIT(A) in denying exemption u/s. 54B of the Act by enhancing the income of the assessee in the facts and circumstances of the case.

Read the full order from here

ITAT-H

Conclusion

The tribunal has ruled in favour of the assessee and dismiss the appeal.

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