Non-verification of the amount placed in a Capital Gain Account during the year of transfer does not give rise to a claim under Section 263 of the tax code.
Fact and issue of the case
1. Briefly the facts of the are that the case of the assessee was reopened under section 147 and reasons were recorded by the Assessing officer before issuance of notice under section 148 on 8/09/2016 stating that the assessee has sold a property for Rs. 32,50,000/- during the Financial Year 2011-12 relevant to impugned assessment year and in the return of income filed on 27/09/2012, the transaction has not been reflected / disclosed by the assessee and therefore he has reason to believe that income to the extent of Rs. 32,50,000/- chargeable to tax has escaped assessment. In response to the notice under section 148, the assessee filed a copy of revised return filed on 30/09/2012 disclosing the capital gains on sale of the property and declaring an income of Rs. 2,52,645/-. Thereafter notice under section 143(2) and 142(1) were issued and after considering the information/documents submitted by the assessee, the return of income of Rs. 2,52,645/- was accepted.
2. The assessment records were thereafter called for and examined by the Ld. PCIT. On examination of the assessment records, the Ld. PCIT observed that the assessee has shown capital gain in his ITR at Rs. 25,67,392/-in respect of sale of house on 29/02/2011 and claimed entire capital gain exempted under section 54 being amount deposited in capital gain account scheme on 12/09/2012 with maturity date of 12/09/2015. The assessment was finalized on 28/09/2018 and as per provisions of Section 54, there are time limits wherein the assessee is required to purchase a new residential property within one year before or within two years after the date of transfer of the original residential house property or construct a new residential property within three years from the date of transfer of the original residential house property. The ld PCIT observed that on examination of bank account of the assessee, it is revealed that the entire amount i.e. principal and interest of Rs. 29,63,696/- was transferred on 22/09/2014 from capital gain account to saving account No. 01030100004075 and subsequently Rs. 15,00,000/-transferred on 22/09/2014 in the bank account maintained by M/s Bali Ram Surjit Singh out of which Rs. 7,00,000/- was stated to be withdrawn for the purchase of property. As per the Ld. Pr. CIT, the AO has not carried out any enquiry and assessment has been framed by relying upon reply of the assessee that the property wroth Rs. 32,50,000/- has been sold during the financial year. The AO has also failed to examine the purchase consideration, source of purchase of said property and year of purchase with supporting evidence and has also failed to examine the person to whom the property has been purchased. In view of the same, in his prima facie opinion, the order so passed by the AO is erroneous in so far as prejudicial to the interest of the Revenue and accordingly a show cause was issued to the assessee on 10/03/2021. In response to the show cause, neither anybody attended the proceedings nor sought any adjournment on behalf of the assessee and thereafter the Ld. PCIT decided the matter on merit as per record available with him.
3. As per the Ld. PCIT, on perusal of the assessment records including the questionnaire and noting sheet entry, it is revealed that the hearing in the case took place on multiple occasions and assessee also made submission during the course of assessment proceedings and copy of sale deed as well as bank account statement were furnished. However the entire capital gain claim as exempt remained unverified by the AO at the time of assessment proceedings in terms of Section 54 of the Act. Further AO only relied upon the assessee that the property worth Rs. 32,50,000/- has been sold without any documentary evidence. Accordingly, he is of the considered opinion that the assessment proceedings so completed by the AO under section 143(3) read with 147 is erroneous and prejudicial to the interest of the Revenue and the same was set aside to the file of the AO to pass a fresh order of assessment after providing reasonable opportunity to the assessee. Against said findings and direction of the Ld. PCIT, the assessee is in appeal before us.
Observation the by tribunal
The tribunal have heard the rival contentions and pursued the material available on record. On perusal of the show-cause notice, it is noted that the ld PCIT has stated that the assessee has sold the house property on 29/02/2011 and has claimed entire capital gains as exempt u/s 54 being money deposited in capital gain account scheme on 12/09/2012. Therefore, it is an undisputed fact that before filing of the return of income on 30/09/2012, the assessee has invested the entire capital gain amounting to Rs. 26,00,000/- in the Capital Gain Account Scheme maintained with SBI on 12/09/2012 and has claimed the entire capital gains as exempt under section 54 of the Act. As the assessee couldn’t carry out the purchase/construction of new property within the stipulated time and that too, before the date of furnishing of the return of income and has invested the entire capital gains in the capital gains account scheme (to be utilized subsequently), the said claim is clearly in consonance with the express and unambiguous wordings of sub-section (2) of section 54
Therefore, any action on part of the Assessing officer to verify such utilization needs to be undertaken or examined in the year when the period of three years from the date of transfer of original asset expires and not in the year of the transfer of the original asset. Consequently, any inaction on part of the Assessing officer to carry out such verification will call for action u/s 263 in the year of expiry of three years and not in the year of transfer. Similar view has been taken by the Coordinate Chandigarh Benches in case of Smt Gurmeet Kaur (supra) where it was held that “Any inquiry, therefore, conducted on the transaction by the AO would have made no difference to the outcome of the assessment order for the impugned year. The utilization of the amount invested in capital gains account scheme, could be and was to be examined in subsequent years when so utilized and addition on account of disallowance of exemption granted earlier for incorrect utilization was also to be done in subsequent years only.” In light of the aforesaid discussions and in the entirety of facts and circumstances of the case, we are of the considered view that the exercise of jurisdiction u/s 263 by the ld PCIT cannot be sustained in view of the express provisions of claim of exemption u/s 54 and the order so passed by the PCIT is set-aside and that of the AO is sustained. In view of the aforesaid discussions, other contentions raised by the ld AR regarding challenge to validity of proceedings u/s 147 in collateral proceedings u/s 263 have become academic and the same are not adjudicated upon and left open. In the result, appeal of the Assessee is allowed. Order pronounced on 17/11/2022.
The tribunal has ruled in favour of the assessee and dismiss the appea.