KAVITA MANOJ DAMANI,MUMBAI vs. INCOME TAX OFFICERM INT TAX WARD 2(1)(1), MUMBAI

ITA 2648/MUM/2024Status: DisposedITAT Mumbai09 June 2025AY 2020-2119 pages
AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the assessee was entitled to the exemption under Section 54. Regarding the ownership of the original flats, the Tribunal noted that the sale of these flats was executed by the assessee in her individual capacity, the consideration was received in her bank account, and the capital gains were brought to tax in her hands by the AO. The Tribunal also noted that the purchase of the new flat from her husband was also executed via a registered agreement to sell, and the title was transferred in her name. The Tribunal found that the AO had merely looked at transactions on a single day (12.03.2021) when alleging fund rotation, without considering prior transactions where the assessee parked funds in fixed deposits or with Altan Engineering Pvt. Ltd. before making the payment to her husband. The Tribunal observed that the purchase of the new flat was made within the stipulated time frame of two years after the transfer of the original asset, as prescribed under Section 54. Therefore, the claim of exemption under Section 54 could not be denied. The AO was directed to allow the exemption claimed by the assessee under Section 54 of the Act.

What were the facts?

The assessee, Kavita Manoj Damani, filed her return for AY 2020-21, claiming exemption under Section 54 on long-term capital gains of ₹4,21,83,273 arising from the sale of two flats. The Assessing Officer (AO) denied this exemption, holding that the assessee was not the real owner of the original flats, that her husband, Mr. Manoj Damani, was the deemed owner due to clubbing provisions (Section 64(1)(iv)), and that the purchase of the new residential property from her husband was a colourable device. The AO also questioned the timing and source of funds for the purchase of the new property. The CIT(A) upheld the AO's order. The assessee appealed to the ITAT.

What were the issues?

1. Whether the assessee was the real/economic/deemed owner of the property (Flat No. 402A/402B, Glen Classic CHS) and thus eligible for exemption under Section 54 on the long-term capital gains arising from its sale, or if her husband, Mr. Manoj Damani, was the deemed owner under Section 64(1)(iv) of the Income-Tax Act, 1961. 2. Whether the exemption under Section 54 could be denied on the grounds that the purchase of the new residential property from her husband constituted a colourable device to evade tax. 3. Whether the exemption under Section 54 was liable to be disallowed because the assessee had not deposited the unutilized amount of capital gains into an account under the Capital Gains Account Scheme as required by Section 54(2). Assessee's Contention: The assessee argued that the sale of the original flats and the purchase of the new property were genuine transactions. She contended that the relationship between the purchaser and seller (spouse) is not relevant for Section 54 exemption, citing ITAT decisions. She also argued that payments for the new property were made before the return filing date and that the funds were parked temporarily due to pending lower tax deduction applications. The assessee also argued that even if clubbing provisions applied, only net income after eligible exemptions could be clubbed. Revenue's Contention: The Revenue relied on the findings of the lower authorities, which held that the husband was the deemed owner, the transaction was a colourable device, and the funds for the new property purchase were rotated to evade tax. The AO also disallowed exemption on the grounds that the assessee had not deposited unutilized capital gains into the Capital Gains Account Scheme.

Which sections of the Income-tax Act were involved?

Section 54,Section 64(1)(iv),Section 139,Section 143(2),Section 142(1),Section 133(6),Section 144C,Section 250,Section 54(2)

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Income Tax Appellate Tribunal, ‘I’ BENCH MUMBAI

Before: SHRI AMIT SHUKLA & SHRI VIKRAM SINGH YADAV

For Appellant: Shri. Bhadresh Doshi
For Respondent: Shri. Krishna Kumar, Sr. DR
Hearing: 11/03/2025Pronounced: 09/06/2025

PER VIKRAM SINGH YADAV (A.M): This appeal has been preferred against the impugned order dated 07.03.2024 passed in Appeal no. CIT(A) 56, Mumbai/10315/2019-20 by the Ld. Commissioner of Income- tax(Appeals)/ National Faceless Appeal Centre (NFAC) [hereinafter referred to as the “CIT(A)”] u/s.250 of the Income- Tax Act, 1961 [hereinafter referred to as "Act"] for the Assessment year [A.Y.] 2020-21 wherein the assessee has taken the following grounds of appeal: “1 On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in upholding the finding of the Assessing Officer that the real / economic /deemed owner of the property (Flat

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