No Requirement To Disclose Amount Of Sale Consideration Received In Cash While Claiming Exemption U/S.54 Income Tax Act: Gujarat HC

A petition was filed under Article 227 of the Constitution praying for setting aside the order passed by the Interim Board for Settlement, so far as it rejects the claim of the exemption under Section 54 of the IT Act amounting to Rs.2,40,14,000/- for Assessment Year 2016-17.

The Division Bench of Justice Bhargav D. Karia and Justice Niral R. Mehta observed, “ On perusal of the above provisions of Section 54 of the Act, which does not stipulate that the petitioner is required to disclose the amount of sale consideration received in cash while claiming exemption under Section 54, in the return of income filed by the petitioner.."

Senior Advocate Sasurbabh Soparkar appeared for the Petitioner while Advocate Varun K Patel appeared for the Respondents.

The Petitioner was subjected to search proceedings by the Income Tax Authority under Section 132 of the Act on March 6, 2018. During search proceedings, it was alleged various incriminating material and documents were found and seized and proceedings for assessment under Section 153A of the Act commenced.

Petitioner thereafter filed an application before the Settlement Commission for the period from A.Y. 2011–12 to 2018–19 disclosing the total income of Rs.2,99,15,288/-. The petitioner stated that the undisclosed income has been earned by carrying out transactions for the buying and selling of land. The petitioner also declared unaccounted investment in the construction of a bungalow out of unaccounted sale proceeds for the sale of properties.

Thereafter, by Finance Act, 2021, the provisions of the settlement were amended, the Settlement Commission was abolished and for pending cases with the Settlement Commission, Respondent No. 1-Interim Board for Settlement Commission was constituted by inserting Section 245AA of the Act.

The petitioner, inter alia, claimed exemption under Section 54 of the IT Act on long-term capital gains earned on the sale of residential bungalows before Respondent No. 1. He also filed a rectification application, which was not decided. Hence, the present challenge.

On perusal of Section 54 of the IT Act, the Court said that the very basis of such reason denying deduction under Section 54 is contrary to the Application filed by the petitioner for settlement of the tax dues vis-a-vis the undisclosed income.

“On bare perusal of the above provisions, the Settlement Commission/ Board is required to pass order in accordance with the provisions of the Act. Therefore, the grounds for rejection given by the board for denying the deduction under Section 54 of the Act apparently are not in accordance with the provisions of Section 54 of the Act.”, the Court remarked.

The Court added, “We find that the respondent no.1-Board has committed serious error in law in disallowing the claim of the petitioner inasmuch as the petitioner is entitled to the deduction under Section 54 of the Act considering the claim made by the petitioner in respect of cash portion of Rs.2,40,14,000/- also as the petitioner has already disclosed such sale consideration as part of the undisclosed income and it is not in dispute that the petitioner has made investment for purchase of the property at Sahajanand Bungalows.”

The Court concluded that the order of the Settlement Commission on the issue of denial of deduction under Section 54 of the Act was not by the provisions of Section 54 of the Act and accordingly the order of the Settlement Commission to the extent of denial of deduction under Section 54 of the Act in respect of cash portion of Rs.2,40,14,000/- was quashed and set aside.

"Therefore the grounds on which the deduction under Section 54 of the Act is denied by the board are not tenable, as none of the three grounds on which the deduction under Section 54 of the Act is denied can be said to be contrary to the provisions of the Act and that such contravention has prejudiced the appellant and the petitioner is entitled to get the deduction under Section 54 of the Act also qua the amount paid in cash to purchase the property as amount received in cash by the petitioner is considered as part of undisclosed income of the petitioner, then once the same is considered as undisclosed income, the petitioner is also entitled to deduction under Section 54 of the Act when it is also not in the dispute that the such amount has been invested for purchase of the property by payment of cash.”, the court said.

The Court also modified the impugned order passed by the Settlement Commission under Section 245D(4) of the Act to such extent by directing the Respondent Authority to accept the amount of Rs.15,50,432/- offered by the petitioner as taxable long-term capital gains after granting deduction under Section 54 of the Act as claimed by the petitioner.

Cause Title: Ashwinbhai Babubhai Dudhat v. The Interim Board For Settlement

Appearances:

Petitioner: Senior Advocate Sasurbabh Soparkar and Advocate BS Soparkar

Respondents: Advocate Varun K Patel

Click here to read/download the Judgment