Capital gain deduction us 54 54F for belated returns u/s 139(4) allowable-ITAT

Capital gain deduction us 54 54F allowable for belated returns u/s 139(4). Value of stamp duty authorities us 50C(3) to be adopted if DVO value is more

ABCAUS Case Law Citation:
ABCAUS 1086 (2016) (12) ITAT

Brief Facts of the Case:
The assessee was an individual deriving income from business, capital gains and other sources. During the year under consideration, the assessee had earned long term capital gain on sale of two flats and jewellery. The capital gain worked out by the assessee were as under:-

(A) Capital gain on sale of flats
(a)    Sale Consideration of Flat-1
(b)   Sale Consideration of Flat-2
Less: Indexed cost acquisition








(B) Capital gain on sale of Jewellery
(a)    Sale consideration
(b)   Less: Indexed cost of acquisition






  Gross Long Term capital gain 1648597
Less: Deduction u/s 54F on purchase of Flat 1648597
Taxable Capital Gain NIL

The assessee had sold two flats. On perusal of the agreement and registration documents submitted by the assessee, the Assessing Officer (AO) observed that in respect of both the two flats sold, the market value determined by the Stamp Authorities was higher than taken by the assessee at Rs.42 lacs and hence for the purpose of computation of capital gain, the value determined by the Stamp Authorities was adopted u/s 50C of the Income Tax Act, 1961. Accordingly, the AO computed the capital gain by invoking the provisions of Section 50C.

The assessee requested AO that the an approved valuer may be appointed to value the said property as in the opinion of the assessee, the amount taken by the stamp authorities was arbitrary. The AO rejected the contention of the assessee as the assessee had not challenged the valuation made by the Stamp Authorities while paying stamp duty.

Further, with respect to the claim of deduction u/s 54/54F by the assessee, the AO observed that assessee had filed return of income on 17th October, 2005 while due date for filing return of income was on 31st July, 2005 as provided u/s 139(1) which was extended by the CBDT upto 31 August, 2005 vide Circular No.220/1/2005 dated 27.07.2005. The AO observed that the assessee had neither utilized the capital gain for the purpose of purchase of residential house on or before the date for filing of return nor has deposited the same with specified capital gain account with bank, hence deduction u/s 54/54F of the Act was not allowed and capital gain was computed by him by disallowing the claim for deduction u/s 54/54F.

Aggrieved by the assessment order passed by the AO u/s 143(3), the assessee filed first appeal before the CIT(A) and contended that the matter should be referred to the DVO as valuation as per the stamp authorities was arbitrary and without any basis. CIT remanded the matter to the AO to get the property valued by DVO. The DVO determined the valuation of these properties at an amount which was even higher than the value taken by Stamp Valuation Authorities. Accordingly, the AO worked out the capital gain at increased amount instead of as computed in the assessment order. With respect to deduction under section 54/54F of the Act , the same was allowed to the assessee by the learned CIT(A) to the extent of Rs. 25,00,000/- which was invested by the assessee on 23-09-2005 for acquiring new asset before filing of return of income for the year under consideration on 17-10-2005, as the same was invested within extended time for filing return of income us 139(4) of the Act . However, CIT(A) disallowed the claim for the rest of the capital gains amounting to Rs. 5,91,414/-.

Contentions of the Assessee:
(i) that the market value of the property should be adopted as per the value adopted by the stamp authorities instead of value adopted by the DVO as per provisions of Section 50C(3) as against actual sale consideration of Rs. 42 lacs for both the flats.

(ii) That authorities erred in not allowing investment of Rs. 5,51,846/- which was attributable to stamp duty, registration charges and other miscellaneous expenses.

Observations made by the ITAT:
The Tribunal observed that in view of provisions of Section 50C(3), the value as adopted by stamp duty authorities had to be adopted to be full value of consideration of the property for computing capital gains under provisions of the Act , as the valuation adopted by DVO was higher than stamp duty authorities valuation.

The ITAT further observed that the assessee had invested in the new residential property on 23 September, 2005 while the due date of filing return as extended by CBDT was 31.08.2005 but the said investment was made before the expiry of date of filing of return of income as stipulated u/s 139(4) and the assessee had filed return of income on 17-10-2005 wherein the investment was made prior to filing of return of income with the Revenue, and hence the assessee was entitled for the deduction.

Regarding deduction for the amount of Rs. 5,51,846/- towards stamp duty, registration charges and other miscellaneous expenses in the new house property. The tribunal opined that the claim of the assessee for being eligible for higher deduction u/s 54/54F on the grounds that the said sum was spent before the filing of return of income on 17.10.2005 within time stipulated u/s 139(4) of the Act required verification by the AO.

The Tribunal categorically stated that the capital gain deduction u/s 54 54f for belated returns u/s 139(4) of the Act is allowable as held in a recent judgment by Hon’ble Bombay High Court. 

The case was set aside to the file of AO to verify the date of filing of return of income after providing proper and sufficient opportunity of being heard to the assessee in accordance with principles of natural justice.

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