Deduction u/s 54 of Income Tax Act not allowable as Capital Gain as is not Taxable in Current Assessment Year: ITAT directs to examine Previous A.Y [Read Order]

The Income Tax Appellate Tribunal (ITAT) Ahmedabad Bench while directing to examine previous year assessment regarding capital gain exemption held that deduction under Section 54 of Income Tax Act, 1961 is not allowable as capital gain is not taxable in the current assessment year. The sale of the residential property was occurred in the previous year.

The assessee Manesh Bansilal Shah has filed its return and also had returned capital gain on account of sale of a residential property.

The said property was sold for a consideration of Rs.3.30 crores and the assessee being co-owner along with two co-owners, he had shown sale proceeds of Rs.1,09,98,900/- pertaining to his share.

The assessee had also claimed exemption under Section 54 and 54EC of the Income Tax Act amounting in all to Rs.86,61,245/-, resulting in capital gain at NIL.

During the proceedings, the Assessing Officer noticed that the capital gain pertained to the preceding year since he noted that the property sold on 27.2.2012, i.e in F.Y 2011-12 pertaining to A.Y. 2012-13; the impugned year before us being A.Y. 2013-14.

Accordingly, the AO held that the capital gain was not liable to tax in the impugned year.

Aggrieved by the order, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) {CIT(A)}, who dismissed the appeal . Accordingly, against the order the assessee filed an appeal before the tribunal.

Biren Shah, counsel appeared on behalf of the assessee submitted that assessee is eligible for capital gain exemption under Section 54 of Income Tax Act from the property sold.

Rakesh Jha, the counsel for the revenue submitted that capital gain from sale of property were liable to tax in the preceding year i.e.A.Y. 2012-13, and alternatively, he also held, that if capital gain is found taxable in the impugned year, then the assessee is not entitled to claim deduction under Section 54 of the Income Tax Act.

The tribunal after reviewing the facts and submissions of the both parties, the two-member bench of Annapurna Gupta (Accountant Member) and Rajpal Yadav (Vice-President) held that since the capital gain has been held to be not taxable in the impugned year, the eligibility to claim exemption of the same is to be examined in the year to which the capital gain pertains. Thus, the tribunal directed the AO to examine the previous year.  

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