HUF Member's Property Purchase Entitles Capital Gain Exemption u/s 54 of Income Tax Act : ITAT quashes Reassessment Proceedings [Read Order]

The Ahmedabad bench Income Tax Appellate Tribunal ( ITAT ) while quashing the reassessment proceedings held that Hindu Undivided Family ( HUF ) member’s property purchase entitled capital gain exemption under Section 54 of the Income Tax Act, 1961.

The Assessee Mandar Kulkarni is a member of HUF. During the assessment proceedings AO observed that the assessee has sold its ancestral property at Satara with agricultural land on 23..11.2010 and the capital gain arising for the assessee, HUF, was reported in the original return of income at Rs.28,76,181/- .

The assessee had acclaimed deduction under Section 54 of the Act in view of the investment of sale proceeds in the new house property. However, the assessee, HUF, had purchased new house property in the individual capacity i.e. Mandar Kulkarni.

Therefore, the Assessing Officer has reason to believe that the assessee, HUF, had not fulfilled a vital condition for the purchase of new property to be eligible for claiming deduction under Section 54 of the Act i.e. the new property should have been purchased and registered in the name of assessee, HUF, and not in the name or individual.

The deduction claimed in the hands of the assessee, Mandar Kulkarni, HUF, was found irregular and, therefore, the Assessing Officer issued show cause notice to the assessee.Accordingly assessee case was reopened .However the assessee objected the reopening. The AO dispossessed the contention.   made disallowance under Section 54 of the Act as claimed by the the assessee in respect of exemption of Long Term Capital Gain to the tune of Rs.18,11,020/-

Aggrieved by the order assesee filed an appeal before the CIT(A). The CIT(A) dismissed   the appeal filed by the assessee. Thereafter the assessee filed an appeal before the tribunal.

During the adjudication Vineet Moondra,  the counsel for assessee argued that assessee has sold residential house and made investment in new residential house within the stipulated time period provided under Section 54 of the Income Tax Act. Further the assessee is a member of HUF. The said investment in a new residential house was made in the name of Mandar Kulkarni in his personal capacity.

Purushottam Kumar, Department Representatives ( DR ) argued that the Assessing officer has rightly invoked Section 147 of the Act as the HUF has not purchased the property and the deduction cannot be claimed by HUF when the name of property is that of an individual and not in the name of HUF.

Furthermore the DR submitted that the amount has to be utilized in the name of HUF only. The Property sold was that of ancestral property of HUF. Owner is not HUF and, therefore, claim of exemption under Section 54 of the Act was not justifiable and the same should have been taken into account by the earlier assessment proceedings carried out under Section 143(3) of the Act,. Thus, the reopening was totally valid

The tribunal observed that in the first round of assessment under Section 143(3) of the Act, the very issue of claim of exemption under Section 54 of the Act was taken into account and all the aspects of the said issue was considered at that threshold which was thereafter contested by the CIT(A) and the CIT(A) has also passed order dated 03.08.2015 which remain uncontested.

After analyzing the submission of both parties, the bench of Suchitra Kamble, ( Judicial Member )quashed the reassessment proceedings and held that the Hindu Undivided Family ( HUF ) member’s property purchase entitled capital gain exemption under Section 54 of the Income Tax Act.

To Read the full text of the Order CLICK HERE

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