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Income Tax Appellate Tribunal, MUMBAI BENCHES “G”, MUMBAI
Before: Shri Mahavir Singh & Shri Rajesh Kumar
O R D E R
Per Rajesh Kumar, Accountant Member
1. The Revenue by way of this appeal is challenging the order of the Ld. Commissioner of Income-Tax (Appeals)-8 hereinafter called [CIT(A)], Mumbai, in Appeal No.CIT(A)-8/IT-247/15-16 dated 14/07/2017. The assessment for impugned AY was framed by Ld. Assistant Commissioner of Income Tax (OSD)-3, Mumbai [AO] u/s 143(3) of the Income Tax Act,1961 on 28/04/2015. The grounds raised by the Revenue are as under:
" Whether on the facts and circumstances of the case and in- law, the Ld. CIT(A) has erred in allowing assessee’s claim of deduction by holding that the provisional allotment letter has to be held as acceptable for the purpose of claim of deduction u/s. 54 and completion of construction of new residential property is not precondition for admitting claim of deduction u/s 54 of the Act.
The appellant craves leave to amend or alter any ground or add a new ground which may be necessary.
Subrata Mukharji 2. The issue raised in ground NO.1 is against the order of CIT(A) allowing the deduction u/s 54 of the Act to the assessee on the basis of provisional allotment letter by the builder by holding that the deduction u/s 54 could be granted on the basis of provisional allotment.
The facts in brief are that the assessee has sold residential flat at 901, Mahindra Heights, Tardeo, Mumbai for Rs. 4,85,75,000/- vide sale deed dated 28/09/2011 making long term capital gain thereon of Rs. 91,16,742/-. The assessee claimed deduction u/s 54 of the I.T. Act of Rs. 71,00,000/- on the basis of provisional allotment letter dated 29/09/2012 claiming that he along with his wife as booked the said flat for a total consideration of Rs.2,01,15,250/-. During the course of assessment proceedings the AO was of the view that the deduction u/s 54 of the Act could not allowed on the basis of provisional agreement with the developer. The AO, accordingly, issued show-cause notice to the assessee as to why the deduction should not be rejected which was replied by the assessee by submitting that agreement for flat in Jaypee Greens, Noida was not finalized as property was under construction and thus only provisional letter was issued by the builder which was submitted before the AO as a proof of investment of Rs. 71,00,000/-. The Ld. AO, rejecting the claim of the assessee on the ground assessee has not fulfilled the various conditions as envisaged by provisions of 54(1) of the Act , rejected the claim the assessee and levied tax on Rs. 71,00,000/- in the assessment framed u/s 143(3) of the Act.
In the appellate proceedings Ld.CIT(A) allowed the appeal of the assessee after considering the various contentions and submissions by the assessee during the appellate proceedings by observing and holding as under:
5.1.1 This relates to disallowance of claim of deduction u/s. 54 of the Income Tax Act 1961 to the tune of Rs 71,00,000/-. The assessing officer has discussed this at para 4 of his order. He observed that during the assessment year, appellant has sold his residential house at 901 Mahindra Heights, Tardeo, Mumbai-400034 on September 28. 2011 for a total sale consideration of Rs.4,85,75,000/-. The long term capital gain on the said residential house property after indexation amounting to Rs.71,16,742/- was invested to the tune of Rs.71 ,00,000/- in a new residential house property bought at 1401, Kalypso Court- 8, Jaypee Greens, Noida on September 18, 2012 for a total consideration of Rs. 2,01,15,250/- claiming deduction under section 54 of the Income Tax Act, The assessing officer asked the appellant to show cause why claim of deduction u/s, 54 should not be denied because the appellant had entered into a provisional agreement which does not fulfill the conditions laid down in section 54(1) of the Act since there is no purchase agreement and no possession letter.
5.1.2 The assessing officer further mentioned that the authorized representative explained that the impugned property was under construction and expected to be completed on or before June 2015. The assessing officer observed that no documentary evidence regarding this claim was submitted. The assessing officer concluded that as per section 54 (1) of the Act, the new residential property has to be either purchased within 2 years of the transfer of the old property or new residential house should be completed within 3 years of transfer of the original residential property. Since there was no purchase deed and since the property is still under construction claim of deduction u/s. 54 was rejected by the assessing officer. 5.1.3 The assessing officer has not disputed any other facts relating to amounts, dates, payment or existence of provisional allotment letter. His objection is on the ground that there is no purchase deed and the impugned new residential property is still under construction during the relevant period. I find that similar issue has teen adjudicated by Hon'ble ITAT Mumbai in Shri Hasmukh N, Gala vs ITO, vide order dated 19/08/2015. In that case, the appellant had paid a booking advance to the builder and received allotment letter. The assessing officer held that advance could not be treated as "purchase" for the purpose of section 54 of the Act and since the property was still under construction, the appellant had not gained
Subrata Mukharji possession of the new property. After considering all the facts of the case, the Hon'ble ITAT held that the assessing officer was not justified in denying exemption under section 54. While concluding the decision the bench also referred to similar decision taken by coordinate bench in Shri Khemchand Fagwani ys ITO, order dated 10/09/2014. 5.14 Applying the ratio of the above decision of jurisdictions! ITAT, it is concluded that provisional allotment letter has to be held as acceptable for the purpose of claim of deduction under section 54 of the Act. Further, as indicated in the above decision, completion of construction of new residential property is not a precondition for admitting claim of deduction u/s, 54. Accordingly, this ground of appeal is allowed.
5. After hearing both the parties and perused the material on record , we observe that the CIT(A) has passed a very reasoned and speaking order by holding that the deduction u/s 54 of the Act can be claim on the basis of provisional allotment letter, by following decisions of coordinate benches in the case of Shri Hasmukh N. Gala vs ITO (supra) and Shri Khemchand Fagwani vs ITO (supra). Further, Ld. CIT(A) also held that the completion of construction or registration property is not a precondition for allowing the claim u/s 54. In our opinion the order passed by Ld. CIT(A) is correct and does not require any interference on our part. Accordingly, the ground raised by the revenue is dismissed.
The issue raised in the second ground of appeal is against the order of CIT(A) allowing the ALV or Municipal Rateable value whichever is higher by ignoring the fact that municipal rateable is not the correct ALV.
The facts in brief are that during the course of assessment proceedings the AO found that the assessee was owner of four properties out of which one was self occupied and three others were vacant. The ALV of the self occupied property was claimed as ‘nil’ and in respect of the remaining three vacant properties the fair rental value as per the municipal authorities was taken as ALV and thus offered the income under the head house property. According to the AO the said ALV as per the municipal retable value is not a correct and he determined the fair rent at 8% of the total investments on these properties as ALV and thus computed the income from house property at Rs. 22,81,533/- as against the income shown by the assessee of Rs. 4,97,000/- resulting into an addition to the income under the head house property to the tune of Rs. 17,84,033/-
In the appellate proceedings ld. CIT(A) deleted the additions made by the AO by observing and holding as under:
5.2.6 I find that the assessing officer has misunderstood the provisions of section 23. Clauses (a), (b) and (c) of section 23(1) are deeming provisions specifying that for the purposes of charging tax on income from house property u/s. 22, the sums mentioned in the aforesaid subsections shall be deemed to be the "annual value" of any property. What amount has to be considered as deemed annual value under clause (a) of section 23(1) has been decided by several courts including jurisdictional courts. 5.2.7 Thus, the assessing officer has to first consider ALV fair rent calculated by the appellant and compare it with municipal value/ratable value as the base deemed figure for the purpose of clause (a) of section 23(1). He has to take the higher of the two values. If the actual rent received during the year is higher than that then the assessing officer has to take it as the deemed annual value of the property as per clause (b). When the actual rent received or receivable during the year is less than municipal value deemed as annual value under clause (a) due to non-letting, the provisions of clause (c) apply. As long as the fair rent calculated as per section 23(1)(a) or received/receivable as mentioned in section 23(1)(b) exceeds the municipal value, the same has to be taken for the purpose of calculating deemed annual value of the property on which tax has to be charged in accordance with law. I find the case laws relied upon by the appellant
Subrata Mukharji further support the above position. Accordingly, this ground of appeal is allowed,
9. After hearing both the sides and perusing the material available on record, we find that in this case the assessee has adopted the municipal retable value for the purpose of showing the income under head house property in respect of three vacant flats. We also note that the AO has not tried to ascertain the fair rent in the market by enquiring the rent in the vicinity of these flats. In such a scenario the only right course to determine the ALV is at municipal retable value. In our opinion the Ld. CIT(A) has taken a very reasonable view of the matter as the AO has completely failed to bring on record the evidence to the contrary. Accordingly, we uphold the order of CIT(A) by dismissing the ground raised by the revenue.
In the result, the appeal of the revenue is dismissed.
Order pronounced in the open court on 23.04.2019