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Income Tax Appellate Tribunal, “B” BENCH, AHMEDABAD
Before: SHRI P.M. JAGTAP, VICE- & SHRI SIDDHARTHA NAUTIYAL
आयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरण, अहमदाबाद �यायपीठ आयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरण अहमदाबाद �यायपीठ अहमदाबाद �यायपीठ ‘बी’ अहमदाबाद। अहमदाबाद �यायपीठ अहमदाबाद। अहमदाबाद। अहमदाबाद। IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH, AHMEDABAD BEFORE SHRI P.M. JAGTAP, VICE-PRESIDENT AND SHRI SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER ITA No. 611/Ahd/2019 Assessment Year : 2016-17 Chinmay Gaurangbhai Shah, ACIT 34-35 Indraprastha Bunglows, Vs Circle (Intl Taxation)-1, Opp. Management Enclave, Ahmedabad Vastrapur, Ahmedabad-380015 PAN : ALTPS 6470 N अपीलाथ�/ (Appellant) �� यथ�/ (Respondent) Assessee by : Shri D.K. Parikh, AR Revenue by : Shri Abhimanyu Singh Yadav, Sr. DR सुनवाई क� तार�ख/Date of Hearing : 15/06/2022 घोषणा क� तार�ख /Date of Pronouncement: 13/07/2022 आदेश/O R D E R PER P.M. JAGTAP, VICE-PRESIDENT: This appeal filed by the assessee is directed against the order of learned Commissioner of Income-tax (Appeals)-13, Ahmedabad (“CIT(A)” in short) dated 18.03.2019 and the grounds raised therein read as under:- “1. The learned CIT(Appeals) erred both in law and in fact in confirming the order of the AO holding that appellant was liable to offer income of Rs.2,02,22,198/- in respect of Long Term capital gain in Assessment Year 2018-19 on the ground that provisions of section 54F(1) were violated on account of purchase of two residential units in FY 2017-18. The ld CIT (A) erred in not appreciating that the appellant had satisfied conditions of section 54F for the year under consideration as also there is no violation of provisions of section 54F in any year. 2. The ld CIT(A) erred in law and on facts in not appreciating that the AO travelled beyond his jurisdiction in concluding that appellant had to offer capital gain of Rs.2,02,22,198/- in assessment year 2018-19 when the assessment for said year was not before him and further, on facts and true legal position, the said amount being not taxable even in Assessment Year 2018-19, the order and conclusion of AO ought not to have been be affirmed. It be so held now. 3. Without prejudice to the above, as the appellant has satisfied the condition of purchase of one house by acquiring common residence of Flat No: 601 & 601 as per undisputed facts, there being no violation of any condition of section 54F in any year the authorities below erred in law and on facts in holding that amount of Rs.2,02,22,198/- was to be taxed as capital gain in A.Y. 2018-19.
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Without prejudice to the above ground, and though the facts clearly established that appellant had purchased one residential house, the amended provisions clearly enabled even purchase of one more house under which also benefit claimed ought to be given. 5. The ld CIT(A) erred in law and on facts in not appreciating that the order passed by Id AO was without following principles of natural justice and adequate opportunity of being heard was not afforded. 6. The ld CIT(A) erred in law and on facts in directing the AO to take appropriate action in A.Y. 2018-19 which is against the sanction of law.
The assessee, in the present case, is an individual who is a non-resident. The return of income for the year under consideration was filed by him on 26.07.2016 declaring a total income at Rs. Nil. During the year under consideration, the assessee had sold shares of Hitachi Hirel Ele. Private Ltd for a total consideration of Rs.2,56,76,800/- and after claiming deduction on account of indexed cost of acquisition of said shares amounted to Rs.4,54,602/-, the Long Term Capital Gain was arrived at Rs.2,52,22,198/-. In the return of income filed for the year under consideration, deductions of Rs.50 lakhs and Rs.2,02,22,198/- were claimed by the assessee under Section 54EC and 54F of the Act respectively and accordingly the Long Term Capital Gain at Rs. Nil was declared. The return filed by the assessee was selected for scrutiny for examining the deductions claimed by the assessee under Section 54EC and 54F of the Act. On examination, the Assessing Officer found that the deduction under Section 54F was claimed by the assessee on account of investments made in the purchase of the following two residential flats:-
Date of Cost of purchase Area Address Party from purchase including stamp duty whom and regn charges purchased 20.07.2017 Rs.60,91,059 21.09 Flat No.601, B-Wing, Palm Bandhavi Sq. Mtr Spring, Palm Court Sharma Complex Link Road, Malad (West), Mumbai -400064 20.07.2017 Rs.1,11,37,591 38.65 Flat No.602, B-Wing, Palm Arun Sq. Mtr Spring, Palm Court Sharma & Complex Link Road, Malad Deepak (West), Mumbai -400064 Sharma
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Since, as per the provisions of Section 54F of the Act as amended with effect from 01.04.2015, the claim of deduction was admissible only for the investment made in purchase of one residential house, the assessee was called upon by the Assessing Officer to offer his explanation in the matter. In reply, the following submission was filed by the assessee:-
“The seller had purchased two flats No. 601 & 602 on same floor and adjoining each other. The relationship of seller of flat No.601, Bandhavi Sharma is a daughter of Arun Sharma and holding power of attorney of Bandhavi Sharma. The seller of flat No.602 is Arun Sharma and his wife Deepa Sharma. Both are father and mother of Bandhavi Sharma. The seller had joined/combined two flats in to one flat. There is a one entrance of main door. However, seller daughter and father has two agreements for their purchase, we have to execute two sale deeds. In fact there is a one residential flat No.601/2. The assessee has purchased flat jointly with his wife, Smt. Rima Shailesh Desai. Full payment is made by the assessee from his SBI Capital gain account and from his own funds. The assessee is a 100% owner of the said property. For the sake of convenience, his wife’s second name is there in the document.”
The Assessing Officer did not find merit in the submission made by the assessee and rejected the same for the following reasons given in his order:- “(i) Purchase deed has been executed in respect of Flat No.601 and 602 independently by the previous owners. (ii) The present sale deed executed in respect of Flat No.601 and 602 in the name of the assessee and his spouse also recognizes the same as independent residential flats. (iii) No evidence in the form of sanction of the BMC for amalgamation of these two flats into a single residential unit has been submitted by the assessee. (iv) In the record of the housing society as well, flat No.601 and 602 have been recorded as independent units of two different owners. (v) BMC is also charging the taxes as two different units. (vi) BEST electric and water supply meter are also independent. ”
For the reasons given above, the Assessing Officer held that the investment made by the assessee in purchase of two residential flats during the FY 2017-18 by withdrawing from the Capital Gain Account was liable to be treated as income of the assessee for AY 2018-19 in view of the provisions of Section 54F(1) of the Act.
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The order passed by the Assessing Officer under Section 143(3) of the Act dated 28.11.2018 holding that deduction claimed by the assessee under Section 54F of the Act for the year under consideration was liable to be withdrawn and the income to that extent was taxable in the hands of the assessee for AY 2018-19 when the amount kept in capital gain account was withdrawn and utilized for making investment in purchase of two residential units was challenged by the assessee in an appeal before the learned CIT(A) and the submissions made before the Assessing Officer were reiterated on behalf of the assessee before the learned CIT(A) in support of his case that both the residential flats were joined - making it one residential unit - by the seller before the same was sold to the assessee. The case of the assessee thus was that the investment was made by him in purchase of one residential unit only and there being no contravention to provision of sub- section (1) of Section 54(F), the deduction claimed by him could not be withdrawn and treated as its income for AY 2018-19. The learned CIT(A) did not accept this contention of the assessee and proceeded to uphold the view taken by the Assessing Officer on this issue for the following reasons given in paragraph Nos. 5.1 to 5.6 of his impugned order:-
“5.1 I have considered the facts of case, Assessment Order, details and submissions filed by the Appellant. It is observed that during the year under consideration, the appellant sold shares of Hitachi Hirel Private Limited for total consideration of 2,56,76,800/- and claimed deduction u/s 54F and 54EC in the following manner : Particulars Amount Total sale consideration 2,56,76,800 Less : Indexed Cost of Acquisition 4,54,602 Long Term Capital Gain (A) 2,52,22,198 Less : Deduction u/s 54F of the Act (Deposit in 2,06,00,000 Capital Gain account with SBI on 20.07.2016) (B) Less : Deduction u/s 54EC of the Act (Deposit in 50,00,000 NHAI Capital Gain Bonds on 30.11.2015) (C) Total Deduction (D = B+C) 2,56,00,000 Taxable Long term Capital gain (A-D) NIL
5.2 As against total capital gain of Rs. 2,52,22,198/-, investment in view of provisions of section 54EC and 54F was made to the tune of Rs. 2,56,00,000/- and capital gain was shown at Nil while filing return of income by the appellant. During the course of Assessment Proceedings, the Assessing Officer observed that
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the appellant has made deposit with State Bank of India Capital Gain Account scheme to Rs. 2,06,00,000/- on 20.07.2016 i.e. on or before the due date of filing Return of Income u/s 139(1) of the Act and thus claim of appellant for the year under being A.Y. 2016-17 was allowed. It was further observed that financial year 2017-18, the appellant purchased two residential units by withdrawing from capital gain account and contravened the provisions of section 54F(1) of the Act which limits investment in one residential units. Accordingly deduction of Rs.2,02,22,198/- claimed on account of investment in capital gain scheme was required to be treated as income of A.Y. 2018-19. He allowed deduction in current year because, appellant has made investment in capital gain saving scheme in current year but held that as appellant has violated provisions of section 54F by investing in two flats separately, such deduction is required to be taxed as income in A.Y. 2018-19 as per provisions of section 54F of the Act. 5.3 The appellant, on the other hand, argued that the amendment brought by Finance Act 2014 only clarified that the investment in the residential house which would qualify for deduction u/s 54F of the Act has to be necessarily located in India. The investment made by the appellant in new residential house is located in India and therefore, appellant is eligible to claim deduction u/s 54F even after applying the amended provisions of the Act. 5.4 On overall consideration of facts it is observed that during the year under consideration, the appellant has sold shares and relevant amount has been deposited in Capital Gain account of SBI before the due date of filing return of income. Hence the condition stipulated in the said section for claiming deduction during the year has been duly met by the appellant without any default and such fact is not disputed by the Assessing Officer as well. The only dispute is that the appellant has purchased two residential units against allowable limit of one residential unit in A.Y. 2018-19 which is in contravention to provisions of section 54F(1) of the Act. Due to such default, the Assessing Officer has held that though deduction is available in current year but appellant is required to offer capital gain for Rs.2,02,22,198 in AY 2018-19 when she has purchased two units. The claim of appellant that amendment brought in section 54F(1) relates to investment in property in India as against earlier provisions of making Investment anywhere in world. For this aspect, it is pertinent to refer to Memorandum to Finance Bill 2014 wherein amendment brought from 01/04/2015 in Act is discussed. "The existing provisions contained in sub-section (1) of section 54, inter alia, provide that where capital gain arises from the transfer of a long-term capital asset, being buildings or lands appurtenant thereto, and being a residential house, and the assessee within a period of one year before or two years after the date of transfer, purchases, or within a period of three years after the date of transfer constructs, a residential house then the amount of capital gains to the extent invested in the new residential house is not chargeable to tax under section 45 of the Act. The existing provisions contained in sub-section (1) of section 54F, inter alia, provide that where capital gains arises from transfer of a long-term capital asset, not being a residential house, and the assessee within a period
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of one year before or two years after the date of transfer, purchases, or within a period of three years after the date of transfer constructs, a residential house then the portion of capital gains in the ratio of cost of new asset to the net consideration received on transfer is not chargeable to tax. The benefit was intended for investment in one residential house within India. Accordingly, it is proposed to amend the aforesaid sub-section (1) of section 54 so as to provide that the rollover relief under the said section is available if the investment is made in one residential house situated in India. It is further proposed to amend the aforesaid sub-section (1) of section 54F so as to provide that the exemption is available if the investment is made in one residential house situated in India. These amendments will take effect from 1st April, 2015 and will accordingly apply in relation to assessment year 2015-16 and subsequent assessment years. The following are the relevant amended provisions: "54F(1) [Subject to the provisions of sub-section (4), where, in 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 as residential house (hereinafter 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) (hereinafter in this section referred to as new asset), the capital gain shall be dealt with in accordance with the following provisions of this section, that is to say, -" It is clearly stated that intention of legislature was to allow deduction u/s 54 or 54F only when one residential house and that too in India is purchased. The amendment is brought in Act for clearly restricting deduction u/s 54F for assets purchased outside India as well as purchasing or constructing more than one residential unit as various courts have interpreted earlier- provisions being "constructed a residential house" and particularly word "a" means any number of units. This issue has been discussed by Hon'ble Madras High court in the case of CIT Vs Smt. V.R. Karpagam [2014] 50 taxmann.com 55 wherein it is observed as under: “The amendment to section 54F by the Finance (No. 2) Act, 2014 which will come into effect only from 01-04-2015, makes it very clear that the benefit of section 54F will be applicable to constructed, one residential house in India and that clarifies the situation in the present case, i.e., post amendment, viz. from 01-04-2015, the benefit of section 54F will be applicable to one residential house in India. Prior to the said amendment, it is clear that a residential house would include multiple flats/residential units as in the present case where the assessee has got five residential flats.
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All the Authorities below have clearly understood that the agreement signed by the assessee with 'M', is that the assessee will receive 43.75 per cent of the built up area after development, which is construed as one block, which may be one or more flats. In that view of the matter what was before the Assessing Officer is only equivalent of 56.25 per cent of land transferred, equivalent to 43.75 per cent of built up area received by the assessee. This built up area got translated into five flats. Hence, it is opined that the transaction in this case was not with regard to the number of flats but with regard to the percentage of the built up area, vis-a-vis, the Undivided Share of Land. [Para 10]" 5.5...... ... .. Thus by making above-amendment in Finance Act, 2015, now, assessee cannot make investment in property outside India for the purpose of claiming deduction u/s 54F of the Act as well as assessee cannot acquire more than one house property. The appellant has relied upon decision of Hon’ble High court referred in his submission which relates to first restriction provided in section 54F of the Act whereas case of appellant falls within second restriction, as discussed herein above. 5.6 In the present case, while passing the assessment order, the AO has observed that appellant has purchased two housing units separately, deeds are executed separately, no evidence in form of sanction of BMC for amalgamation of these two fiats into a single residential unit has been submitted by assessee, in the record of housing society as well as flat no 601 and 602 have been recorded as independent units of two different owners, BMC is also charging the taxes as two different units, BEST electric and water supply meter are also independent and he came to conclusion that both units being unit 601 and 602 are two different units which cannot be considered as one unit as per amendment brought by Finance Act 2014 from 01/04/2015. The appellant has not rebutted any such argument in appellate proceedings, considering these facts, AO has held that as investments in two flats are made in AY 2018-19, Appellate is required to offer income in said assessment year. Considering these facts, AO is directed to take appropriate action in AY 2018-19 and determine income in said year as per directions above. Considering these facts, all related grounds of appeal are dismissed.”
Aggrieved by the order of the learned CIT(A), the assessee has preferred this appeal before the Tribunal.
We have heard the arguments of both the sides and also perused the relevant material available on record. It is observed that the claim of the assessee for deduction under Section 54F of the Act made in the return of income filed for the year under consideration is not disturbed by the authorities below and the assessee having allegedly made investment in purchase of two residential units, the deduction claimed under Section 54F is held to be liable to be withdrawn in AY 2018-19 when the said investment was made by the assessee by withdrawing
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the amount deposited in the capital gain account in view of the provision of sub- section (1) of Section 54F of the Act. In this regard, the learned Counsel for the assessee has contended that the learned CIT(A) ought to have left with issue open to the Assessing Officer to decide on merits in AY 2018-19 instead of giving a finding on merit that the assessee is not eligible for deduction under Section 54F of the Act since the said issue was not involved for consideration on merit in the year under appeal, i.e. AY 2016-17. We find merit in this contention of the learned Counsel for the assessee and since the learned DR has also not raised any objection in this regard, we modify the impugned order of the learned CIT(A) and direct the Assessing Officer to decide the issue relating to the assessee’s claim for deduction under Section 54F of the Act afresh on merit in AY 2018-19 after giving the assessee an opportunity to establish his case that the investment was made by him in purchase of one residential unit and not two residential units as alleged by the Assessing Officer.
In the result, the appeal of the assessee is treated as partly allowed.
Order pronounced in the open Court on 13th July, 2022 at Ahmedabad.
Sd/- Sd/-
(SIDDHARTHA NAUTIYAL) (P.M. JAGTAP) JUDICIAL MEMBER VICE-PRESIDENT Ahmedabad, Dated 13/07/2022 *Bt आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त ( अपील ) / The CIT(A)- 5. �वभागीय ��त�न�ध आयकर अपील�य अ�धकरण/DR,ITAT, Ahmedabad, , 6. गाड� फाईल /Guard file. आदेशानुसार/ BY ORDER,