Key Takeaways from Handpicked rulings

1. [TS-8475-ITAT-2018(KOLKATA)-O] : Time limits u/s. 54 for construction of residential house: The[1]  one year prior window under sec. 54 is available even for construction of a residential house and not only for purchase - ITAT allows entire deduction claimed by the assessee u/s. 54, deletes the part disallowance sustained by the CIT(A) on the ground that the deduction cannot be allowed for amount spent on construction of residential house made before the date of transfer of original asset; Noting that the purpose of giving deduction u/s. 54 of the Act is to encourage the assessee to invest in residential property whether it is purchase or construction of residential house, holds that “...it does not stand to logic that an assessee who starts constructing a new residential house within one year before the sale of the old asset cannot get the benefit of deduction u/s. 54 of the Act however, an assessee who purchases a new residential property a year before sale of property is allowed deduction u/s. 54 of the Act is illogical.”;

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2. [TS-6928-HC-2018(JAMMU AND KASHMIR)-O] : Notice u/s. 143(2) when no return is filed: Notice u/s. 143(2) need not be issued if no return is furnished by the assessee u/s. 139 - HC allows Revenue's appeal for AY 2005-06, reverses ITAT order which held that notice u/s. 143(2) was required to be issued even in the case when no return is filed in response to notice u/s. 148; Notes that no return was filed in response to notice u/s. 148 and the return filed for AY 2005-06 was after the time limit prescribed u/s. 139(1) & 139(4) and hence have to be treated as non-est; Holds that “ Notice under Section 143(2) is required to be given only when return is furnished. Furnishing of the return is a sine qua non for issuance of notice under Section 143(2) of the Act. If no return is furnished by the assessee, there can be no reason for issuance of notice under Section 143(2) of the Act”;

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3. [TS-8455-ITAT-2018(MUMBAI)-O] : Deduction u/s. 54F on depreciable assets : Deeming fiction u/s. 50 treating capital gains on depreciable assets as short term capital gains, cannot be extended to Sec. 54F - ITAT allows assessee’s claim u/s. 54F on sale of a depreciable asset, holds that Sec.54F does not make any distinction between depreciable assets and non depreciable assets and capital gain arising from long term depreciable assets is long term capital gain for the purpose of claiming exemption u/s. 54F; Follows jurisdictional HC ruling in ACE Builders (P.) Ltd. [TS-38-HC-2005(Bombay)-O] wherein it was explained that the legal fiction created in Sec. 50 is to deem capital gain as short term capital gain and not to deem an asset as short term capital asset and therefore it cannot be said that Sec. 50 converts long term capital asset into short term capital asset;

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Editorial Note :- Recently, ITAT Mumbai Bench in another case [TS-8457-ITAT-2018(Mumbai)-O] held that income earned by the assessee on sale of a depreciable property was to be treated as long-term capital gains entitling him to the benefit of deduction u/s 54F.

4. [TS-8481-ITAT-2018(DELHI)-O] : Penalty for belated E-TDS returns: Penalty for belated E-TDS returns filing u/s. 272A(2)(k) cannot be levied when delay is caused due to technical glitches caused by the software for filing of the returns - ITAT deletes penalty levied for belated filing of E-TDS returns for AY 2010-11, grants immunity u/s 273B noting technical difficulties faced in filing e-TDS returns; Notes that during financial year 2010-11, there was a switchover of filing of TDS return in paper forms to e-filing, by way of amendment in Rules which constituted hardships to assessees in filing the TDS returns and holds that “...due to software installed by revenue for e-filing of TDS returns, initial technological glitches has caused delay in filing of quarterly statements of TDS, for which no penalty can be levied on assessee.”;

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5. [TS-8474-ITAT-2018(BANGALORE)-O] : Allowability of interest for delayed remittance of TDS: Interest paid u/s. 201(1A) for delayed remittance of TDS in the nature of tax, cannot be allowed as a deduction - ITAT upholds disallowance of interest on delayed deposit of TDS u/s. 201(1A), notes that Madras HC in the case of Chennai Properties and Investment [TS-5404-HC-1998(Madras)-O] held that interest paid u/s. 201(1A) is also in the nature of tax and notwithstanding the fact that it is not the tax liability of the assessee, the same cannot be allowed as a deduction; Distinguishes assessee’s reliance on ITAT Kolkata bench decision in the case of Narayani Ispat Pvt Ltd [TS-7629-ITAT-2017(Kolkata)-O] wherein such interest on  delayed remittance of TDS was held to be an allowable expenditure;

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Editorial Note : SC in its decision reported in  [TS-5004-SC-1997-O] held that interest on arrears of tax is compensatory in nature and not penal.

CBDT Updates:

1. Central Govt. designates Sessions Courts as Special Courts for trial of offences punishable under the provisions of Prohibition of Benami Property Transactions Act, 1988  - Notification No. 67/2018

2. CBDT amends Form 36 (Form of appeal to the Appellate Tribunal) and Form 36A (Form of memorandum of cross-objections to the Appellate Tribunal) - Notification No. 73/2018

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