M/S.RASHMI SINGH,MUMBAI vs. PR.CIT-26, MUMBAI

Brief facts of the case are that learned CIT issued u/s.263 of the Act on following grounds :- i) On going through the assessment, records, it is seen that during the year under consideration, assessee had sold residential flat, at Kurla for sale consideration of Rs.70,00,000/- and earned LTCG of Rs.67,67,735/-. Assessee has claimed exemption u/s 54 of the I.T. Act against purchase of two Flats bearing Nos. 503 & 504 at Hans Residency, Kurla.

ii) It is observed that the investments have been made in two different properties whereas as per the provisions of Section 54 of the I.T.Act, assessee is entitled for exemption only in respect of one house. Since the basic condition required for claiming exemption u/s 54 was not fulfilled, the exemption claimed of Rs.70,00,000/- for purchase of two flats should have been restricted to one Flat i.e. Rs.35,00,000/- approx. and disallowed accordingly. iii) Further, it is seen that the assessee had sold Shop No. 36 at Dreams Mall, Bhandup for sale consideration of Rs.35.91.000/- and offered LTCG of Rs.19,19,327/-, However, the market value of the property for the purpose of stamp duty valuation is Rs.43,40,000/-. The A.O. failed to apply the provisions of Section 50C and difference of Rs.7,49,000/- was required to be disallowed and added to the total income.

Learned CIT was not satisfied with the response of the assessee. He proceeded to refer to the case laws for the proposition that the Assessing Officer’s order is stereotype order which simply accepts what the assessee has stated in his return and fails to make inquiries which are called for. In these circumstances of the case, learned CIT would be empowered to exercise his jurisdiction u/s. 263 of the Act.

With regard to exemption claimed u/s. 54 of the Act learned CIT(A) observed that investments have been made in two different properties which is not permissible under the provisions of section 54 of the Act. Assessee in this regard referred to the decision of Hon'ble Bombay High Court in the case of CIT vs. Devdas Naik (in of 2011 dated 10.6.2014). Learned CIT(A) noted that inspector was deputed to file report. Learned CIT(A) noted that though flats are adjacent, they have different entry gates and separate kitchen. Hence learned CIT rejected the assessee’s contention and held that the assessee had purchased two flats with intention of using it as two different units. He thereafter observed that the Assessing Officer has not made thorough examination.

Further learned CIT(A) observed that the assessee has sold shop No. 36 at Dreams Mall for sale consideration of Rs. 35,91,000/- as against market value of the property as per stamp duty valuation at Rs. 43,40,000/- and offered long term capital gain of Rs. 19,19,327/-. After inquiry from the assessee learned CIT(A) was of the opinion that the Assessing Officer should have referred valuation of the valuation officer which has not been done by the Assessing Officer. Hence, he held that there is failure on the part of the Assessing Officer in making necessary verification while passing assessment order. Hence learned CIT held that the order passed by the Assessing Officer was erroneous and prejudicial to the interest of revenue. The same was set aside the file of the Assessing Officer for deciding the issue afresh in view of the above direction.

Against the above order assessee is in appeal before us.

We have heard both the counsel and perused the records. As regards the issue of entitlement of exemption u/s. 54, learned Counsel of the assessee submitted that the said issue is covered in favour of the assessee. In this regard learned counsel referred to several case laws for the proposition that adjacent units used as single accommodation should be treated as single unit. In this regard he referred several case laws. Further learned counsel submitted that section 54 of the Act has been amended from 1.4.2015 to provide that exemption should be limited to only one flat. Learned counsel submitted that this amendment is prospective and is not applicable to the current assessment year which A.Y. 2013-14. In this regard he referred to the decision of Hon'ble Madras High Court in the case of CIT Vs. Smt. V.K. Rarpagam (373 ITR 127). In this case it was expounded that amendment to section 54F limiting the exemption to only one flat was effective from April 1, 2015. Hon'ble High Court held that prior to amendment it was clear that residential house would include multiple residential units. Hence, we hold that learned CIT has erred in distinguishing the Hon'ble Jurisdictional High Court decision cited before him. Respectfully following the aforesaid decisions, we hold that the assessee is entitled to exemption u/s. 54F of the Act for the flats as claimed by it.

As regards the issue of sale of shop, learned counsel submitted that as held by Hon'ble Delhi High Court in the case of CIT Vs. Hanuman Prasad Ganeriwala (43 taxmann.com 133) that circle rate as stipulated u/s 50C can become starting point of an inquiry cannot be sole concluding reason to hold that there was understatement of sale consideration. Learned counsel also referred to the decision of ITAT Jodhpur Bench decision in the case of Meghraj Baid Vs. ITO (114 TTJ 841 vide order dated 14.2.2008) for the proposition that if the Assessing Officer did not agree with the explanation of the assessee with regard to lower consideration disclosed by him, he should refer the matter to the DVO for getting market rate established as on the date of sale to arrive at correct sale consideration.

Upon careful consideration, we note that now it is very clear that if sale proceeds are lower than stamp valuation rate the Assessing Officer has to adopt rate from stamp valuation. If the assessee objects to the same the Assessing Officer is mandated to refer the matter to the DVO. By failing to do so, the Assessing Officer has committed mistake. Accordingly, we deem it appropriate to uphold the order of learned CIT in directing u/s. 263 of the Act to the Assessing Officer to examine the issue of sale consideration afresh. Accordingly, assessee’s appeal is partly allowed.