In a significant ruling, the Mumbai bench of the Income Tax Appellate Tribunal recently held that if a cheque is encashed by the builder after the deadline for filing income-tax return, it will not debar the taxpayer from claiming I-T exemption under section 54 of the Income Tax Act, which is available on reinvestment of long term capital gains in residential property.
Assessee, in the instant case, sold his immovable property and purchased another residential property. Assessee’s claim for exemption under section 54F was rejected by the AO by finding that assessee made payments through cheques and some of the cheques were not cleared even after one year from the date of sale of old house. He was of the view that as the unutilised amount of Rs 62.21 lakh was not deposited in a separate bank account, to this extent the tax exemption claimed by assessee should be disallowed. AO, therefore, denied exemption to the assessee by holding that the consideration for the new house should have been paid by the assessee within one year from the date of sale old house.
On appeal, the first appellate authority allowed exemption to the assessee.
As per section 54, the time limit available for purchase of house is one year before the date of transfer of original asset or two years after the date of such transfer. The division bench found that the assessee has purchased a new residential house and paid the consideration within two years from the date of transfer. Under Section 54(2), the amount which has not been utilised for purchasing a new house before the due date of furnishing of return of income u/s. 139 of the Act shall be deposited by him before furnishing such return in an account in any such bank or institution as may be specified in and shall be utilised in accordance with scheme so framed in this regard.
Before the Tribunal, the assessee contended that he had issued cheques on the date of agreement itself i.e. 26.7.2012, which is before the date of furnishing of return of income. However those cheques have been encashed by the builder belatedly and hence the assessee should not be penalized for thatit was also contended that once cheques have been issued, assessee’s liability gets fulfilled and the same constitute utilization of sale proceeds of the old house.
Diving deeply into the facts of the case, the bench noted that the Assessing Officer had disallowed the claim on ground that the payment for purchase of new house property has not been made within one year from the date of transfer of original asset. Deleting the order, the bench noted that the provisions of section 54(1) allow purchase of new house within two years from the date of transfer of asset.
Regarding the department’s contention that the assesses has violated the provisions of s. 54(2), the bench allowed the contentions of assessee and noted that there is no dispute that the assessee has issued cheques to the seller of house property on 26.7.2012, which is prior to the date of furnishing of return of income of the instant year.
Read the full text of the Order below.