Loading judgment…
Facts
The revenue challenged the deletion of an addition related to the disallowance of a Section 54F deduction. The assessee had claimed deduction for purchasing a residential property after selling a leasehold property. The AO disallowed the claim, stating the investment was made prior to the sale and denied deduction under Section 54F. The CIT(A) deleted the addition, which the revenue appealed.
Held
The Tribunal held that the assessee had purchased the property in accordance with Section 54F, as the payments were made in 2008, which was after the sale of the leasehold property. The Tribunal also found that the interest income from a fixed deposit had already been offered to tax by the assessee's mother and directed the AO to delete the addition.
Key Issues
Whether the purchase of a new residential property was in accordance with Section 54F for claiming deduction on capital gains, and whether interest income from fixed deposit was taxable in the assessee's hands.
Sections Cited
54F, 144(3), 148, 143(2), 142(1), 147, 250
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “E” BENCH, MUMBAI
Before: AND SHRI RENU JAUHRI, AM
(Assessment Year: 2009-10) Income Tax Officer, Mumbai Harsh Sandeep Thakore 4th Floor, Harvansh, N. S. Road, 8, 502, Piramal Chambers, Lalbaug, Parel, Mumbai – 400012. Vs. JVPD Scheme, Vile Parle, West, Mumbai – 400049. PAN/GIR No. AAAPT4930A (Appellant) : (Respondent) C.O. No. 81/Mum/2024 (Arising out of (Assessment Year: 2009-10) Income Tax Officer, Mumbai Harsh Sandeep Thakore 4th Floor, Harvansh, N. S. Road, 8, 502, Piramal Chambers, Lalbaug, Parel, Mumbai – 400012. Vs. JVPD Scheme, Vile Parle, West, Mumbai – 400049. PAN/GIR No. AAAPT4930A (Appellant) : (Respondent) : Shri. Reepal Tralshawala Assessee by Respondent by : Shri. Hemanshu Joshi (SR. DR.) Date of Hearing : 20.02.2025 Date of Pronouncement : 19.05.2025 O R D E R Per Bench: These are cross appeals filed by the revenue and assessee, challenging the order of the learned Commissioner of Income Tax (Appeals) Delhi (‘ld. CIT(A)’ for short), C.O. No. 81/Mum/2024 (A.Y. 2009-10) Harsh Sandeep Thakore National Faceless Appeal Centre (‘NFAC’ for short) passed u/s.250 of the Income Tax Act, 1961 (‘the Act'), pertaining to the Assessment Year (‘A.Y.’ for short) 2009-10.
The revenue has challenged the deletion of addition amounting to Rs. 5,44,26,375/- which was towards disallowance of the claim of the deduction of the assessee u/s. 54F of the Act. The assessee by way of cross objection has challenged the reopening of the assessment.
Brief facts of the case are that the assessee is an individual and had filed his return of income declaring total income of Rs. 7,84,455/-. The assessee’s case was selected for scrutiny and assessment order u/s. 144(3) of the Act, dated 28.12.2011 was passed by the ld. AO, where returned income of the assessee was accepted by the ld. AO. The assessee’s case was then reopened vide notice u/s. 148 of the Act, dated 18.03.2015, for the reason that the ld. AO observed discrepancies pertaining to the allowance of deduction u/s. 54F of the Act and on the interest income received from the bank which is alleged to have been not included in total income. Notices u/s. 143(2) and 142(1) of the Act were duly issued and served upon the assessee. The assessee was furnished with the reasons for reopening and the learned Assessing Officer ('ld. A.O.' for short) then passed the assessment order u/s. 143(3) r.w.s. 147 of the Act, dated 30.03.2016, determining total income at Rs. 5,58,84,570/- after making addition on long term capital gain of sale of leasehold property by disallowing the claim of assessee u/s. 54F of the Act amounting to Rs. 5,44,26,375/- and disallowance of the interest income on fixed deposit amounting to Rs. 6,73,740/-.
C.O. No. 81/Mum/2024 (A.Y. 2009-10) Harsh Sandeep Thakore 4. Aggrieved the assessee was in appeal before the first appellate authority, who vide order dated 08.02.2024 allowed the appeal filed by the assessee on the ground that the allotment letter dated 04.12.2004 relied upon by the ld. AO was in the name of Mr. Sandeep Bipinchandra Jhaveri which is not related to the assessee and that the assessee has not contravened the provisions of Section 54F of the Act and was hence eligible to claim deduction under the said provision.
Aggrieved by the said order, the revenue is in appeal before us, challenging the order of the ld. CIT(A) in deleting the impugned addition/disallowance.
We have heard the rival submissions and perused the materials available on record. It is observed that the assessee alongwith his mother Mrs. Vimla Thakore have sold the leasehold property on 17.04.2008 for a sale consideration of Rs. 35 crores in which the assessee was entitled to 18% share which amounts to Rs. 6,30,00,000/- which was initially 5% and then acquired a share of 13% vide a gift deed dated 11.04.2008 from the assessee’s mother which aggregates to 18% share. Subsequently, the assessee purchased a residential property on 23.04.2008 vide a purchase agreement dated 23.04.2008. The ld. AO observed that the assessee has invested in an under construction property at flat no. 401 on the 4th floor of the property named ‘Harvansh’ by allotment letter dated 04.12.2004 which was almost three and half years prior to the sale of leasehold property dated 17.04.2008. The ld. AO further stated that the construction of the said property was completed on 23.04.2008 as per the agreement. The assessee’s sale consideration received from the mother for the purchase of the new property amounting to Rs. 6,30,00,000/- was kept in the bank account of Union Bank of India as C.O. No. 81/Mum/2024 (A.Y. 2009-10) Harsh Sandeep Thakore per the conditions of the sale agreement which is to be kept in the fixed deposit in the name of the assessee’s mother Mrs. Vimla Thakore and the purchaser of the assessee’s property Mr. Sanjay Arora and the fixed deposit has to remain in the safe custody of M/s. M & M Legal Ventures which interest has to be paid to the assessee on handing over the possession of the property to the purchaser. The sale consideration of the assessee was then kept in Joint FD with Saraswat Bank in the name of Shri. Sanjay Arora, the purchaser and the assessee’s mother Mrs. Vimla Thakore. The ld. AO observed that the assessee has claimed exemption u/s. 54F of the Act and has also not offered the interest income from the fixed deposit amounting to Rs. 6,73,740/-. The ld. AO denied the assessee’s claim of exemption u/s. 54F of the Act for the reason that the assessee had already invested in the under construction property which is evident from the allotment letter dated 04.12.2004 much prior to the sale and that Section 54F of the Act states that the assessee should have made the investment one year prior or two years after the date of transfer or construction of the residential house within 3 years from the transfer of the capital asset for the purpose of claiming deduction u/s. 54F of the Act, thereby making a disallowance on the same. The ld. AO also added the interest income arised out of the fixed deposit received stating that the assessee has failed to declare the same to the total income of the assessee.
The ld. AR for the assessee contended that the allotment letter dated 04.12.2004 relied upon by the ld. AO was in the name of Mr. Sandeep Bipinchandra Jhaveri against the agreed price of Rs. 1 crore and that Mr. Sandeep Bipinchandra Jhaveri has transferred his right in the property to the assessee after negotiation for which the assessee has paid C.O. No. 81/Mum/2024 (A.Y. 2009-10) Harsh Sandeep Thakore consideration of Rs. 4,90,00,000/- only in the month of March and April, 2008 i.e., before the execution of the agreement dated 23.04.2008. Further, the ld. AR took us through details of the payments made by the assessee to the vendor Mr Sandeep Bipinchandra Jhaveri which reflected that the payments were duly made in the year 2008 only. The ld. DR on the other hand controverted the fact and stated that as per the agreement dated 23.04.2008, it is specified that the transferers have agreed with the transferees to transfer their right as per the allotment letter dated 04.12.2004 in which one of the transferees was the assessee. The ld. DR further contended that since the purchase of the property was not as per the conditions specified u/s. 54F of the Act, the ld. AO has rightly denied the claim of deduction made by the ld. AO. The ld. DR relied on the order of the ld. AO.
In the factual matrix of the case, the issue with requires adjudication is whether the assessee is entitled to claim the deduction u/s. 54F of the Act, as per the sale agreement dated 23.04.2008. It is necessary to taking into consideration the fact where the allotment letter dated 2004 in the name of Mr Sandeep Bipinchandra Jhaveri is binding on the assessee in whatsoever manner may be. On perusal of the records, it is evident that the payments made in the purchase of the property by the assessee was from 2008 that is prior to the sale agreement dated 23.04.2008. The revenue has not brought anything on record to show that the assessee has made payment in the year 2004 for the allotment of the said property. In order to decide the claim u/s. 54F of the Act, it is necessary to see the transactions of the assessee and not that of the original allottee. For C.O. No. 81/Mum/2024 (A.Y. 2009-10) Harsh Sandeep Thakore this, it is essential to consider the provision of the Section 54F which is cited herein under for ease of reference: “Capital gain on transfer of certain capital assets not to be charged in case of investment in residential house. 54F. (1) Subject to the provisions of sub-section (4), where, in the case of an assessee being an individual or a Hindu undivided family, the capital gain arises from the transfer of any long-term capital asset, not being a residential house (hereafter in this section referred to as the original asset), and the assessee has, within a period of one year before or two years after the date on which the transfer took place purchased, or has within a period of three years after that date constructed, one residential house in India (hereafter in this section referred to as the new asset), the capital gain shall be dealt with in accordance with the following provisions of this section, that is to say,— ……………………………“ 10. On a bare reading of the provision, it is seen that the capital gain on transfer of any long term capital asset which is not a residential house cannot be charged, where the assessee has purchased within a period of one year before or 2 years after the date where the transfer of a capital asset not being a residential house had taken place or within 3 years constructed a residential house in India. It is pertinent to point out that the legislature in its wisdom has specifically stated that the assessee should have ‘Purchased’ the property within the time stipulated as per the provision. Upon considering the recitals of the sale agreement dated 23.04.2008, it is observed that Mr. Sandeep Bipinchandra Zaveri, is the ‘transferor’ of the said property vide an allotment letter dated 04.12.2004 by which he acquired the property for a consideration of Rs. 1 crore which was constructed by the ‘confirming parties’ viz. M/s. Harvansh through its members Mrs. Vimala Surendrakumar Vaish and Mr. Ajay Surendrakumar Vaish, whereby the ‘transferor’ agrees to transfer his rights in the property to the ‘transferee’ i.e., the assessee and his mother Mrs. Vimal Sandeep Thakore. It is also evident that ld. AO in C.O. No. 81/Mum/2024 (A.Y. 2009-10) Harsh Sandeep Thakore the assessment order has categorically mentioned that the possession of the property was handed over to the assessee on 24.04.2008 which fact was also not disputed by the revenue and further the consideration for the property was also made only in the year 2008. There is no iota of doubt that the assessee along with his mother has acquired the property only in the year 2008 and not in the year 2004 as alleged by the ld. AO.
Therefore, the assessee has purchased the property in accordance with the provisions of Section 54F of the Act and we deem it fit to hold that the assessee is entitled to claim of deduction u/s. 54F of the Act. On this note, we find infirmity in the order of ld. CIT(A). Therefore, the ground no. 1 to 3 raised by the revenue is hereby dismissed.
Ground no. 4 pertains to the addition of Rs. 6,73,740/- towards interest income from fixed deposit. The ld. AO has made the impugned addition for the reason that the assessee has failed to declare the same in his total income. The ld. CIT(A) on the other hand deleted the same for the reason that the assessee’s mother Mrs. Vimla Thakore has offered the same to tax amounting to Rs. 37,42,998/- arising out of the interest income from the fixed deposit. As the same has already been brought to tax, there can be no addition made in the hands of the assessee. The ld. AO is hence directed to delete the impugned addition after verifying the fact that the interest income offered by the assessee’s mother amounting to Rs. 37,42,998/- also includes the interest income of Rs. 6,73,740/-.
In the result, the ground no. 4 raised by the revenue is hereby dismissed.
In the result, the appeal filed by the revenue is dismissed.
C.O. No. 81/Mum/2024 (A.Y. 2009-10) Harsh Sandeep Thakore 15. As we have dismissed the appeal filed by the revenue, the cross objection challenging the assessment order requires no separate adjudication and therefore the grounds raised by the assessee in the cross objection are rendered academic. Order pronounced in the open court on 19.05.2025 Sd/- Sd/- (RENU JAUHRI) (KAVITHA RAJAGOPAL) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai; Dated: 19.05.2025 Karishma J. Pawar (Stenographer) Copy of the Order forwarded to: