THE ACIT, CENTRAL CIRCLE-2(4), AHMEDABAD vs. DR. GUNWANT KANTILAL PATEL, MEHSANA

The only grievance of the Revenue relates to the deletion of the disallowance of deduction u/s. 54 of the Act amounting to Rs. 84,72,727/-. It is the claim of the revenue that neither the capital gain was deposited in “Capital Gain Account Scheme” before 31.07.2011 nor the assessee has made the investment as per the provisions of the law.

Briefly stated the facts of the case are that the assessee filed the return of income on 08.07.2011. There was a search action on Sanghavi Group of cases which included one Smt. Kokilaben. It was found that Smt. Kokilaben had purchased immovable property from the assessee and during the course of her statement u/s. 132(4) of the Act, she admitted the payment of unaccounted sale consideration of Rs. 85,00,000/- Pursuant to the said search action, the assessee revised the return of income and computed the capital gains by showing the sale consideration at Rs. 2 crores which was same as has been stated by Smt. Kokilaben in her statement u/s. 132(4) of the Act. The income under the head “Long Term Capital Gain” was computed at Rs. NIL after claiming deduction u/s. 54 and u/s. 54EC of the Act.

Since the assessee had revised return after the admission made by Smt. Kokilaben, the A.O. was of the firm belief that deduction u/s. 54 is not available to the assessee and accordingly allowed deduction u/s. 54C of the Act only.

The assessee agitated the matter before the ld. CIT(A) and explained that he is very much entitled for deduction u/s. 54 of the Act inasmuch as all the mandatory conditions specified therein have been complied with. After considering the facts and the submissions and the related documentary evidences, the ld. CIT(A) was convinced that the investment in residential house property has been made well within the time prescribed under the law for claiming deduction u/s. 54 of the Act. The ld. CIT(A) further observed that “in any case, whether there is one unit or more than one unit existing on plots is a factually and physically verifiable aspect and there are at least two units- one flat and one bungalow wherein the investment made is claimed eligible for deduction u/s. 54 of the Act. The ld. CIT(A) was further convinced that the actual investment in the new residential house can be made within the time prescribed under section 54 i.e. two years from the date of transaction of sale and the same is not controlled by either the date of filing of return of income or of fact of depositing into the capital accounts scheme. After considering the eligibility for deduction from all possible angles, the ld. CIT(A) directed the A.O. to allow the claim of deduction u/s. 54 of the Act.

Before us, the ld. D.R. strongly supported the findings of the A.O. Per contra, the ld. counsel for the assessee reiterated what has been stated before the lower authorities. There is no dispute that the assessee revised his return of income after the date of search in the case of Sanghavi Group. It is also true that pursuant to the statement made by Smt. Kokilaben, the assessee enhanced the sale consideration of the property sold by him to Smt. Kokilaben. It is equally true that the enhanced sale consideration was invested in the purchase of house property making the assessee eligible for the deduction u/s. 54 of the Act. In

Insofar as the investment in multiple residential houses is concerned, the Hon’ble High Court of Karnataka in the case of K. G. Rukminiamma 331 ITR 211 had held that “for the purpose of section 54, profit on sale of property used for residence purpose, four residential flats cannot be construed as four residential houses for the purpose of Section 54, it has to be construed only as a residential house. The Hon’ble High Court of Delhi in the case of Gita Duggal 257 CTR 208 has held that the words “a residential house” appearing in section 54/54F cannot be construed to mean a single residential house since under section 13(2) of the General Clauses Act, a singular includes Plural. We find that because of these and similar judicial decisions, the amendment has been brought in Section 54 by Finance Act, 2014 and the legislature in its wisdom has enacted the amendment with effect from 01.04.2015 and therefore the same is not applicable to the subject assessment year.

Considering the facts in totality in the light of the judicial decisions, we do not find any error or infirmity in the findings of the ld. CIT(A). Appeal filed by the Revenue is accordingly dismissed.

The cross objection was not pressed and is accordingly dismissed as not pressed.