INCOME TAX OFFICER 23(1)(5), MUMBAI vs. HARJINDER KAUR P. BHASIN, MUMBAI

Grounds of appeal

Brief facts of the case are as under :- In this case, the assessee had filed the return of income on 23.08.2014 declaring total income of Rs.4,75,130. The assessment was completed u/s. 143(3) and income was assessed at Rs.1,05,59,840 vide order dated 22.12.2016 after making the disallowance of Rs.5,00,000 on account of loan confirmation not provided and hence, unexplained cash credit u/s. 68 of the Act and Rs.95,84,710 being the capital gains deduction claimed by the assessee. The assessee is an individual deriving income from house property, business income, capital gains and other sources. The assessee had borrowed monies of Rs.5,00,000 from Shri P.S. Bajaj and filed the loan confirmation. The said loan confirmation did not bear any signature or PAN of Mr. Bajaj. No response was received to the notice issued u/s. 133(6) of the Act. Accordingly, the AO treated the same as unexplained cash credit and added the same to the total income of the assessee.

The assessee alongwith 3 other co-owners had sold a shop on 26.12.2013 for a consideration of Rs.3,96,00,000. The assessee's share in the shop is 25% and she received sales consideration of Rs.99,00,000 on sale of shop and computed capital gains at Rs.16,84,080. To arrive at the capital gains, the assessee deducted the following :- Indexed cost of acquisition Rs.54,27,745 Indexed cost of improvement Rs.25,12,585 Other costs Rs.2,75,590 Whilst the assessee submitted the details of cost of acquisition and cost of improvement, no details in respect of other costs of Rs.2,75,590 was submitted. Accordingly, the AO computed the capital gains on sale of shop at Rs.19,59,670. The assesses had sold her flat on 14.11.2013 and earned long term capital gains on sale of flat amounting to Rs. 76,25,040. The assessee claimed the deduction of Rs.76,26,040 u/s. 54 and Rs.16,84,080 u/. 54F on sale of flat and shop.

To claim the said deductions, the assessee was required to purchase a property within one year before or two years after or construct a property within three years from the date of sale. The assessee contended that she had invested the gains into a new flat and submitted a copy of allotment letter. The assessee did not furnish the purchase agreement of the flat and accordingly, the AO disallowed the deductions claimed u/s. 54 of Rs.76,25,040 and 54F of Rs. 19,59,670 and added Rs.95,84,710 to the total income.

Against the above order the assessee is in appeal before learned CIT(A) Learned CIT(A) as regards the issue of deduction u/s. 54 and 54F noted the facts as under : “I have perused the allotment letter issued by the Builder, K Mordan Realty dated 04.02.2014. As per the said letter, Fiat No. 1102 on the 11th floor of the proposed new building to be constructed on the land would be allotted to the assessee. The building named Sooraj Prakash was demolished and vide the development agreement dated 18.10.2010 the Society and Developers namely Hicon Developers Pvt Ltd, the development rights were granted to Hicon. However, Hicon could not carry out the development activities and accordingly, with the confirmation of the Society, the development rights acquired by Hicon vide the development agreement were assigned to K Mordan Realty. Pursuant to this, the assessee was allotted flat no. 1102 in the proposed building to be developed for which a total consideration of Rs.2,67,00,000 was paid and the assessee's share in the same was Rs.1,77,00,000. The Builders, K Moran realty has confirmed the receipt of this payment.

Thereafter learned CIT(A) referred to Hon'ble Bombay High Court decision in the case of Hill JB Wadia (69 Taxman 114), ITAT decision in the case of Sudeshkumar G. Nagdev and several other High Court decisions. Thereafter learned CIT(A) concluded as under : “The AO has also observed in the assessment order that the amounts paid under the letter of allotment can be returned as the same are in the nature of advances and hence, the assessee may lose the exemption u/s. 54 of the Act. In my opinion, this does not militate assessee's claim for exemption in the instant assessment year, as there is no evidence brought on record by the AO that the advance has been returned. In case if it is found that the advance has been returned, it would certainly call for forfeiture of the assessee's claim u/s. 54 of the Act. In such a situation, the proviso below section 54(2) of the Act would apply whereby it is prescribed that such amount shall be charged under section 45 as income of the previous year, in which the period of three years from the date of the transfer of the original asset expires. The aforesaid provision also does not justify the action of the AO in denying the claim of exemption under section 54 in the instant assessment year. Therefore, in view of the binding decisions of the jurisdictional High Court and ITAT as well other co-ordinate benches of ITAT in similar facts, I hereby hold that the assessee is allowed the benefit of deduction claimed u/s. 54 and 54F of the Act on the basis of the letter of allotment as the assessee has paid substantial amount of consideration to the builder and hence, the addition made by the AO is hereby deleted.”

As regards the addition of Rs. 5,00,000/- as unexplained cash credit learned CIT(A) referred to the decision of Hon'ble Bombay High Court in the case of CIT Vs. Bhaichand H. Gandhi (141 ITR 67) for the proposition that interest in bank statement and pass book cannot qualify that addition u/s. 68 of the Act. Learned CIT(A) also noted that the assessee has filed unsigned confirmation and also no compliance was made regarding notice u/s. 133(6) of the Act thereafter finally learned CIT(A) held that :

Against this the Revenue is in appeal before us.

We have heard both the counsel and perused the records. We find that learned CIT(A) has decided both the issue in favour of the assessee by placing reliance upon Hon'ble Jurisdictional High Court decision. Moreover it is also noted that tax effect in this case is below the limit fixed by CBDT for filing appeal before the ITAT as per CBDT Circular No. 17/2019 dated 8.8.2019. Accordingly this appeal by the Revenue stands allowed.