Purchase of Land before Sale of Capital Asset ineligible for Income Tax Deduction: ITAT [Read Order]

Capital Asset - ITAT - Taxscan

The Ahmedabad bench of the Income Tax Appellate Tribunal (ITAT) has held that the capital gain exemption under Section 54 of the Income Tax Act, 1961 cannot be availed in case of purchase of land before the sale of the residential unit.

In the instant case, the Commissioner of Income Tax, while invoking his revisional jurisdiction under section 263 of the Income Tax Act, 1961 expressed a view that as per Section 54B(1) of the Act the deduction is permissible only where capital gain is utilized for purchase of land after the transfer of a capital asset. He accordingly, proposed to revise the order by holding that the deduction/examination to the extent of Rs.41,90,160/- attributable to the land acquired prior to transfer is allowed in excess of the parameters laid down.

On appeal, the Tribunal held that the controversy is plain and simple and is not capable of any debate having regard to express statutory language.

“The AO has not given any reason as to how the purchase of land prior to the transfer of the capital asset is eligible for claim of deduction under s.54B(1) of the Act. Thus, as a corollary, the AO has accepted the claim of deduction by oversight and without any application of mind in this regard. No evidence has been adduced before us to show that the issue was present to the mind of the AO. A wrong acceptance of the claim of the deduction would not be given inference towards the application of mind. Secondly, the eligibility of deduction under s.54B of the Act in respect of land acquired prior to the transfer of the capital asset is clearly opposed to the plain provision of the Act and thus apparently not sustainable having regard to express the provision of the statute. The legislature in its own wisdom has used the expression before the transfer of long term asset as well as after the transfer of capital asset at appropriate places viz. Section 54 of the Act. The intention of the legislature is thus quite clear. Therefore, the claim of deduction accepted by the AO despite the unequivocal language of the Act, in our view, is erroneous as contemplated under s. 263 of the Act. Such error on the part of the AO has caused definite prejudice to the interest of the Revenue. The action of the Pr.CIT is thus within the realm of powers vested under s.263 of the Act. The Pr.CIT has distinguished the case laws cited which is found to be in order. We do not see an irregularity in the assumption of jurisdiction by the Pr.CIT under s.263 of the Act,” the Tribunal said.

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