Exemption u/s 54B allowed though not claimed in return of income nor revised return filed

Claim for exemption u/s 54B allowed though not made in the return of income. AO had disallowed claim as revised return was not filed

ABCAUS Case Law Citation:
ABCAUS 3077 (2019) (07) ITAT

Important Case Laws Cited/relied upon by the parties:
M/s. Goetze India Pvt. Ltd. Vs. CIT 284 ITR 323 (SC)
CIT Vs. Pruthvi Brokers & Shareholders reported in 349 ITR 336 (Bom)

The instant appeal was filed by Revenue against order of CIT(A) in allowing the claim of deduction u/s 54B of the the Income Tax Act, 1961 (the Act) which had neither been claimed by the assessee in the return of income nor had filed the revised return.

The assessee was an individual. Her case was picked up for scrutiny. The Assessing Officer noted that the assessee had shown profit on the sale of agricultural land and claimed the same as exempt.

The Assessing Officer sought information from the Municipal Corporation of the distance of the land from the municipal limits. In reply, the Chief Officer confirmed that the distance of land was 5 Kilometers from the limits of the Municipal Corporation.

The assessee was show caused as to why sale consideration received was not offered for LTCG/STCG purpose and be taxed in the hands of assessee.

The assessee claimed that it had purchased an agricultural land within time prescribed and would be entitled to the claim of exemption under section 54B of the Act and the same be allowed to the assessee.

However, the Assessing Officer relying on the ratio laid down by the Hon’ble Supreme Court held that any claim could be allowed only when the assessee files revised return. Therefore, the claim of assessee was disallowed resultant Short Term Capital Gains and Long Term Capital Gains was brought to tax under the head ‘Income from capital gains’.

However, the CIT(A) was of the view that where the assessee had not disclosed any income from capital gains in the return of income, then there was no basis for not allowing legitimate claim of deduction under section 54B of the Act, if otherwise all the conditions had been fulfilled by assessee.

The CIT(A) in turn, relying on the ratio laid down by the Hon’ble High Court held that exemption under section 54B of the Act claimed during assessment proceedings should be allowed.

However, in order to verify whether the assessee had fulfilled all the conditions as prescribed in section 54B of the Act, the said issue for examination was remitted back to the Assessing Officer and it was held that in case the conditions are not satisfied, then exemption under section 54B of the Act shall be denied to the assessee.

The Revenue was in appeal before the Tribunal against aforesaid findings of CIT(A) on the ground that where no claim was made in the return of income, then said exemption was wrongly allowed to the assessee.

Exemption u/s 54B allowable though not claimed in return of income

The Tribunal observed that the claim of assessee during assessment proceedings in allowing the benefit of deduction under section 54B of the Act i.e. on account of investment in new agricultural land was denied to the assessee on the ground that no such claim was made in the return of income and hence, not allowable as per the ratio laid down by the Hon’ble Supreme Court.

In this regard, the Tribunal found no merit in the appeal filed by Revenue, observing that the assessee would be entitled to the aforesaid deduction under section 54B of the Act, in view of the dictate of the Hon’ble High Court.

The Tribunal opined that the decision of jurisdictional High Court was squarely binding and in view of the said ratio laid down, the CIT(A) was duty bound to allow the claim of assessee though not made in the return of income.

The Tribunal pointed out that even the income from sale of agricultural land as either Long Term Capital Gains or Short Term Capital Gains, was never offered by assessee in its return of income. In such circumstances, when the Assessing Officer computing income from capital gains in the hands of any assessee, then it was his duty not only to compute income under the respective heads but also to allow exemptions which are duly allowable to the assessee.

The Tribunal opined that the CIT(A) had in all fairness directed the Assessing Officer to verify whether the assessee has fulfilled the conditions laid down in section 54B of the Act and had further observed that in case they are not so fulfilled, then no deduction under section 54B of the Act is to be allowed to the assessee.

Accordingly, the Tribunal dismissed the grounds of appeal raised by Revenue.

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