Rejection of Exemption u/s 54 of Income Tax Act on Immovable Property Owned by  Assessee's Son without Giving Opportunity to Hearing: Delhi HC  sets aside Order [Read Order]

In a significant case, the Delhi High Court set aside the order rejecting exemption under section 54 of the Income Tax Act, 1961 on immovable property owned by the assessee's son without allowing a hearing.

Shashi Bala Sharma, the petitioner challenged the order under Section 147 read with Section 144B of the Income Tax Act for the Assessment Year 2018-19, coupled with the demand notice under Section 156 of the Act. 

On service of notice, the respondent revenue entered appearance through counsel, who took time to file a counter-affidavit.  Vide order dated 24.04.2023, interim protection was granted, thereby directing the respondent revenue not to take precipitate steps till further directions.  

The respondent revenue opted not to resist the petition. Counsel for the respondent, in all fairness, conceded to the lacunae that had crept into the process culminating in the impugned assessment order and demand notice.  

Reassessment proceedings were initiated against the petitioner, a bedridden terminally ill lady, based on information received on the insight portal maintained by the Income Tax Department to the effect that she had not filed a return of income relevant to the Assessment Year 2018-19 despite having received sale consideration of Rs.2,64,00,000/- about immovable property and had received Rs.12,80,100/- as rent from the Corporation Bank, but had not furnished reply to the notice under Section 148A(b) of the Income Tax Act.  

The petitioner due to her severe medical condition, which led to the disturbance of her entire family, her return of income was filed belatedly on 05.01.2023 in compliance with notice under Section 148 of the Act, in which she disclosed the rental income and the sale consideration of her immovable property, claiming exemption of the long term capital gain under Section 54 of the Act.   

A division bench comprising Justice Rajiv Shakdher and Justice Girish Kathpalia held that “the exemption under Section 54 of the Act be not denied to her for the reason that the sale consideration in question was spent in the purchase of another immovable property in the name of her son and not in her name.” 

Disclosing her condition with medical records, the petitioner sought adjournment for 15 days to respond to the show cause notice but the Assessment Officer allowed her time only till 04.03.2023 vide communication dated 02.03.2023. 

The Court set aside the impugned assessment order as well as the consequent demand notice and the matter is remanded to the Assessment Officer to proceed further by law.

To Read the full text of the Order CLICK HERE

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