AO statutorily required to compute capital gain us 48 not 50C. Deduction us 54EC to be also not on deemed cost of consideration u/s 50C basis-ITAT

AO statutorily required to compute capital gain us 48 not 50C. Deduction us 54EC also allowable on capital gain computed u/s 48 not on deemed cost of consideration u/s 50C-ITAT

ABCAUS Case Law Citation:
1001 2016 (08) ITAT
AY: 2009-10

Brief Facts of the Case:
The appellant assessee had sold a property for a consideration of Rs. 5,00,000/-. However as per the sale deed, the circle rate of the aforesaid property as determined by the State Government was Rs.16,43,000/-. Consequently, the assessee was called upon to explain as to why the sale consideration be not taken at Rs.16,43,000/- in view of the provisions contained u/s 50C of the Income Tax Act, 1961. Not convinced by the explanations of the assessee, the AO calculated the long term capital gain (LTCG) as under :-

The assessee carried the matter before the CIT(A) by challenging the assessment order but without any success.

Feeling aggrieved with the order of CIT(A), the assessee went to the Tribunal in the present appeal.

Before the Tribunal, the assessee  raised the additional grounds submitting that earlier, he was not conversant with the legal position that deeming provisions of section 50C (1) are not applicable to exemption provisions contained under section 54 to 54F.

The Contentions of the Assessee:
The assessee contended that the deeming provisions contained u/s 50C (1) were not applicable in order to compute the exemption u/s 54EC; that the lower appellate authorities  lost sight of the fact that he had invested net amount of capital gains of Rs.2,93,211/- in specified bonds as per provisions contained under section 54EC.

The assessee placed reliance upon the decision rendered by Delhi High Court in Smt. Nilofer I Singh (2009) 309 ITR 233 and cases decided by ITAT, Jaipur Bench in Nand Lal Sharma vs. ITO (2015) 172 TTJ 0412 (Jp) and Gyan Chand Batra vs. ITO (2010) 133 TTJ 0482

Questions Framed by the Tribunal:

1. Whether capital gains are to be computed on actual amount received or on the deemed amount accrued to the assessee?
2. Whether lower revenue authorities have erred in computing the capital gain by ignoring the fact that the assessee has invested entire capital gain of Rs.2,93,211/- in specified bonds as per section 54EC

Observations made by the Tribunal:

The Tribunal observed that the first question has already been settled by the Delhi High Court in the case Smt. Nilofer I Singh (2009) 309 ITR 233 wherein it was held that computation of capital gain is to be done as per provisions contained u/s 48 of the Income Tax Act by taking into consideration the actual cost of sale consideration received by the assessee and not the deemed cost of consideration u/s 50C of the Act.

The Tribunal pointed out that following the law laid down in Smt. Nilofer I Singh  ITAT, Jaipur in Nand Lal Sharma  returned the findings in favour of the assessee in an identical question by holding that section 50C being purely a fiction, its scope is limited to Section 50C only and cannot be enlarged without a specific reference. In the absence of any enabling statutorily provision, a fiction cannot be imported in other section.

Regarding the second question related to deduction claimed in computing the capital gain, the Tribunal observed that the provisions contained u/s 54EC are categoric enough to cover the case of the assessee because when the assessee had invested entire capital gain in the specified bond as per provisions contained u/s 54EC, the entire capital gain earned by him shall be exempted, if the cost of investment in the specified assets is not less than the amount of the capital gains.

The Tribunal noted that the word “cost” appearing in section 54EC is defined in Explanation to section 54EC to mean the amount invested in such specified asset out of capital gains received or accruing as a result of the transfer of the original asset. Meaning thereby that for computing deduction u/s 54EC provision of section 50C was not applicable.

Held:

1. Lower Revenue authorities erred in computing the capital gain on the basis of deemed cost of consideration u/s 50C whereas AO was statutorily required to compute the capital gain as per provisions contained u/s 48 of the Act on the basis of actual cost of consideration received by the assessee.
2. Since the assessee had invested the entire capital in specified bonds u/s 54EC, deeming fiction had no applicability to the case.