Only Unutilized Capital Gains Amount u/s 54F Taxable, Not Entire Capital Gains: ITAT [Read Order]
The Bench held that the AO was not correct in adding the entire capital gains to the total income of the assessee.
Capital Gains Amount - Entire Capital Gains - taxscan
Capital Gains Amount - Entire Capital Gains - taxscan
The Chennai Bench of the Income Tax Appellate Tribunal (ITAT) directed that only the unutilized amount of the Capital Gains Deposit Scheme, and not the entire capital gains, should be added to the assessee's total income.
Mohamed Akbar (assessee), in this case information received by the Income Tax Department's I&CI Wing indicated that the assessee had sold a property in AY 2012-13 for ₹5.00 crores and claimed an exemption under Section 54 of the Income Tax Act.
The Assessing Officer (AO) issued notices to the assessee. The assessee failed to reply to the notices issued by the AO. Therefore the AO passed an assessment order under Section 144 of the Income Tax Act, 1961, and denied the exemption claimed under Section 54 of the Act, adding the entire amount to the total income under the head "Capital Gains".
The AO also subsequently imposed a penalty of ₹39,46,200/- under Section 271(1)(c) of the Act. The assessee's application for permanent registration u/s 12A(1)(ac)(iii) was rejected. Aggrieved by the AO’s order, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) [CIT(A)]. The CIT(A) dismissed the assessee's appeal against the penalty order.
Aggrieved by the CIT(A)’s order, the assessee filed an appeal before the ITAT. The assessee's counsel submitted that the assessee had sold an inherited property on July 7, 2011, for a consideration of ₹5 Crores.
Tax Rules Simplified, Practice Amplified! Click here
The counsel explained that the assessee was unable to utilize the entire amount. The assessee had planned to buy two adjacent flats and combine them, but due to a dispute with the builder, only one flat was allotted, and the sale deed was executed on March 31, 2014, with an expenditure of ₹1,19,27,424. The unutilized portion was ₹1,30,72,576.
The counsel highlighted that as per the Proviso to Section 54, the unutilized amount is deemed to be income under the head capital gains in the previous year in which the three-year period from the date of the transfer expires.
The counsel submitted that the unutilized amount is still available in the Capital Gains Scheme account, and the assessee is ready to pay the tax in full along with interest. The assessee contended that the AO incorrectly added the entire capital gains, when only the unutilized amount should have been added.
The two-member bench comprising S.S.Viswanethra Ravi (Judicial Member) and Ratnesh Nandan Sahay (Accountant Member) noted that the assessee had admitted that the capital gains from the transaction were not fully utilized and offered the unutilized amount for taxation.
The Bench held that the AO was "not correct" in adding the entire capital gains to the total income of the assessee. The Tribunal ruled that only the unutilized amount should be added to the total income of the assessee. In the result, the appeal filed by the assessee was partly allowed.
Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
