The Mumbai Bench of the Income Tax Appellate Tribunal has recently observed that it is immaterial whether the corresponding gain is a short term capital gain by virtue of deeming fiction under section 50 of the Act.The Tribunal was confirming the order of the CIT(A) in which the assessee’s claim towards deduction in respect of transfer of a long term capital asset was allowed.
The assessee, a partnership firm,sold one unit at Chennai which was held for more than 36 months. The assessee made a surplus of Rs.49,83,928/- and accordingly invested Rs.50 lakhs under the provisions of section 50EC in National High Authority of India Ltd bonds of on 20.1.2012 within a period of six months from the date of sale of the said property.
The assessee filed its return of income and claimed deduction under section 54EC of the Income Tax Act in respect of investment of Rs.50 lakhs in specified bonds of National High Authority of India Ltd.the Assessing Officer disallowed the same. However, the CIT(A), on appeal allowed the claim of the assessee by finding that the deduction is allowed on transfer of a long term capital asset and it is immaterial whether the corresponding gain is a short term capital gain by virtue of deeming fiction under section 50 of the IT Act. It was further noted by the CIT(A) that it is material to note that as per the provisions of section 50, only the gains resulting from sale of assets on which depreciation is claimed, are deemed to be short term capital gains. The provision does not stipulate that the asset on the sale of which, the said gains arise will be considered as a ‘short term capital asset’
The Revenue approached the ITAT on appeal. The question to be decided by the Tribunal was that whether the adjustment made during processing of income tax return disallowing the appellant’s claim was within the ambit of section 143(1) or not.The Tribunal opined that the CIT(A) has rightly observed that as per the provisions of section 143(1)(a)(ii) ), the processing should take care of correcting an incorrect claim if such claim is apparent from any information in the return. Therefore, if an appellant has filed a return with obvious errors caused by mismatch of the entries in different columns then such errors should not become a reason for absurd adjustment u/s 143(1), particularly when the appellant was given no opportunity to correct such an error since the provisions of section 139(9) are no more valid and the appellant did not get any opportunity to remove defect in the return filed.
Further, the Tribunal found that the ld. CIT(A) further observed that the direction u/s 54EC is allowed on the gain should resulting from transfer of Long Term capital asset and it is immaterial whether the corresponding gain is a short term capital gain by virtue of deeming fiction under section 50 of the Act. As per the provisions of section 50 of the Act only gains resulted from sale of assets on which the depreciation is claimed, is deemed to be short term capital gains and the said provision does not stipulate that the asset on the sale of which, the said gains arise will be considered as a “short term capital assets ” regardless of the period of its holding by the assessee.
The Tribunal, following the decision in ITO Vs ACE Builders, confirmed the decision of the CIT(A) and decided in favour of the assessee.
Read the full text of the order below.
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