Braham Prakash vs ITO – Dispute on Section 54B Exemption and Reopening of Assessment – ITA No. 6188/DEL/2019

Case Summary: Braham Prakash vs ITO, Ward-1(3), Gurgaon

Case Number: ITA 6188/DEL/2019

Appellant: Braham Prakash, Gurgaon

Respondent: ITO, Ward-1(3), Gurgaon

Assessment Year: 2011-12

Date of Filing: 22nd July 2019

Order Type: Final Tribunal Order

Date of Pronouncement: 18th February 2022

The case of Braham Prakash vs. ITO, Ward-1(3), Gurgaon, revolves around two primary issues: the disallowance of the exemption under Section 54B of the Income Tax Act, 1961, and the legality of the reopening of the assessment for the assessment year 2011-12. The appellant, Braham Prakash, contested the actions of the Income Tax Officer (ITO), who disallowed the deduction claimed under Section 54B on the grounds that the investment was made in the name of his wife, and not in his own name, as required by law. Additionally, the appellant challenged the reopening of the assessment, arguing that it was based on mere suspicion without tangible material evidence.

Background of the Case

Braham Prakash, a resident of Gurgaon, sold a piece of land during the financial year 2010-11, relevant to the assessment year 2011-12, for Rs. 37,00,000/-. In his income tax return, he declared a taxable gain of Rs. 1,02,625/- after claiming exemptions under Section 54F and Section 54B of the Income Tax Act. Specifically, he claimed a deduction of Rs. 12,69,146/- under Section 54B, which pertains to the exemption available for capital gains on the sale of agricultural land, provided that the proceeds are reinvested in purchasing another agricultural land within two years.

However, the Assessing Officer (AO) noticed that the new agricultural land was purchased in the name of Braham Prakash’s wife, rather than in his own name. Citing several legal precedents, including decisions from the Punjab and Haryana High Court, the AO disallowed the Section 54B exemption. The AO also initiated proceedings under Section 147 of the Income Tax Act, which allows for the reopening of an assessment if the AO believes that income has escaped assessment.

Key Issues Raised

The key issues in this case are:

• The validity of the reopening of the assessment under Section 147, particularly whether it was justified based on the available evidence.
• The eligibility of the appellant to claim the exemption under Section 54B when the agricultural land was purchased in the name of his wife.
• The applicability of legal precedents regarding the requirement that the new agricultural land must be purchased in the name of the assessee to qualify for the Section 54B exemption.

Tribunal Proceedings and Findings

The case was heard by the Income Tax Appellate Tribunal (ITAT), Delhi Bench “SMC,” with Shri Kul Bharat serving as the Judicial Member. Despite multiple opportunities, neither Braham Prakash nor his authorized representative appeared before the Tribunal. As a result, the Tribunal proceeded to decide the case based on the material available on record and the submissions made by the Senior Departmental Representative (DR).

Reopening of Assessment

The appellant contested the reopening of the assessment on the grounds that it was based on mere suspicion rather than any tangible material evidence suggesting escapement of income. The Tribunal, however, found no merit in this argument. The Tribunal noted that the AO had reasonable grounds to believe that income had escaped assessment, particularly since the appellant had sold land for Rs. 37,00,000/- without fully disclosing the capital gains. As such, the Tribunal upheld the reopening of the assessment under Section 147, dismissing the appellant’s objections.

Disallowance of Section 54B Exemption

The main contention in this case was the disallowance of the Section 54B exemption. The AO had disallowed the exemption on the basis that the new agricultural land was purchased in the name of the appellant’s wife, not in his own name. The Tribunal referred to several judgments from the Punjab and Haryana High Court, including Jai Narayan vs. ITO and Kamal Kant Kamboj vs. ITO, which established that the exemption under Section 54B is only available if the new land is purchased in the name of the assessee. The Tribunal observed that the language of the statute is clear and unambiguous, stating that the new asset must be purchased in the name of the assessee to qualify for the exemption.

The Tribunal also considered the decision in the case of Dinesh Verma vs. CIT, where the High Court had ruled that even if the purchase of new agricultural land is made in the name of a close relative, such as a spouse, the assessee would not be entitled to the Section 54B exemption. The Tribunal noted that these legal precedents are binding and directly applicable to the facts of the case. As such, the Tribunal concluded that the AO and the CIT(A) were correct in disallowing the exemption claimed under Section 54B.

Tribunal’s Decision

The ITAT upheld the findings of both the AO and the CIT(A). The Tribunal ruled that the reopening of the assessment was justified, as there was a valid reason to believe that income had escaped assessment. Furthermore, the Tribunal confirmed that the exemption under Section 54B was rightly disallowed because the new agricultural land was purchased in the name of the appellant’s wife, contrary to the requirements of the statute.

Consequently, the Tribunal dismissed the appeal filed by Braham Prakash, affirming the decisions made by the lower tax authorities.

Conclusion

This case highlights the importance of adhering strictly to the statutory requirements when claiming exemptions under the Income Tax Act. The decision serves as a reminder that exemptions under provisions like Section 54B are only available when the conditions specified by the law are fully met, including the requirement that the new asset must be purchased in the name of the assessee. Additionally, the case underscores the tax authorities’ authority to reopen assessments when there is credible evidence of income escaping assessment.

Order Pronounced: The appeal of the assessee, Braham Prakash, is dismissed, and the disallowance of the Section 54B exemption is upheld.

Braham Prakash vs ITO – Dispute on Section 54B Exemption and Reopening of Assessment – ITA No. 6188/DEL/2019