AO obliged to give eligible deductions when making additions for income not disclosed in return-ITAT

AO obliged to give eligible deductions when making additions for income not disclosed in return of income-ITAT allowed 54F deduction for sale of property not disclosed in ITR

ABCAUS Case Law Citation:
ABCAUS 2294 (2018) (04) ITAT

The appellant assessee had challeneged the order passed by the Commissioner of Income Tax (Appeals) in confirming the order of the Assessing Officer (AO) by rejecting the claim of deduction U/s 54/54F of the Income tax Act, 1961 Act while computing the long term capital gain.

The assessee was an individual earning income from salary, house property, and other sources, filed his return of income. Initially the return was processed U/s 143(1) of the Act and subsequently the case was selected for scrutiny because it was observed from the AIR information that the assessee had sold his property for Rs.90 lakhs and the same was not disclosed in his return of income.

AO obliged to give eligible deductions when making additions

On query the assessee admitted the sale transaction and requested for granting the benefit of deduction U/s 54/54F of the Act since he had purchased a residential house jointly with his spouse utilizing the entire sale proceeds within the time limit prescribed.

However the AO based on the decision of the Hon’ble Apex Court rejected the claim of the assessee by observing that he did not have the power to entertain any fresh claim of deduction other than what is claimed in the return/revised return of income. Thereafter invoking the provisions of Section 50C of the Act, the AO adopted the valuation determined by the stamp valuation authority at Rs.1,44,00,384/- and computed the long term capital gain of Rs.1,11,66,403/- and assessed 50% of the same in the hand of the assessee being 50 per cent owner.

The CIT(A) confirmed the order of the AO.

Before the Tribunal, the assessee submitted that he was under the bonafide belief that long term capital gain would not be attracted in his case because he had invested along with his spouse a new residential house and therefore had not declared it in his return of income. It was further submitted that when the AO pointed out the sale of his property, the assessee admitted the same and claimed the benefit of deduction U/s 54 of the Act. It was stated that in the case of the assessee’s spouse, on the identical facts, who had jointly sold the property along with the assessee, the AO had accepted the claim of deduction U/s 54F of the Act and granted the benefit of deduction and thereby computed the long term capital gain tax to be ‘Nil’.

The Tribunal observed that though the Revenue had assessed the long term capital gain in the hands of the assessee with respect to the sale of the property which was not declared in the return of income, the AO as well as the CIT(A) had denied to entertain the claim of deduction U/s 54 of the Act to the assessee by citing the decision of the Hon’ble Apex Court.

However the ITAT opined that when the Revenue was proposing to make addition based on certain facts that was omitted to be disclosed in the return of income, it is the preliminary duty of the Revenue to consider the entire issue in a wholesome manner and assess the income of the assessee by granting appropriate deduction prescribed under the Act, more so when the assessee had pointed out such eligible deduction during the course of assessment proceedings.

The ITAT observed that it would not be right on the part of the Revenue to take cognizance of only the fact that capital gain had accrued to the assessee and shut eyes with respect to the other events by which the assessee was rightfully entitled for the benefit of deduction under the provisions of the Act.

 Therefore the Tribunal opined that when the AO had observed that the assessee had earned long term capital gain, he should also have taken note of the fact that the assessee has invested the entire sale proceeds in acquiring a residential house within the time limit prescribed under the Act by which he is entitled to claim the benefit of deduction U/s 54 of the Act.

Moreover it was evident, that, in the case of the assessee’s spouse who was the joint owner of the property sold, the AO had granted the benefit of deduction U/s.54 of the Act, and had not invoked the provisions of 50C of the Act. In such circumstance when the AO had granted relief to the assessee’s spouse considering the entire facts, the same relief ought to have been granted to the assessee also.

The Tribunal opined that the decision of the Hon’ble Apex Court relied by the Revenue Authorities was not applicable to the case of the assessee because the facts were not identical.

The ITAT directed deletion of the addition made in the hands of the assessee towards long term capital gain.

AO obliged to give eligible deductions when making additions

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