HARIHARAN RAMASUBRAMANIAN,PUNE vs. ITO WD 26(2)(1), MUMBAI

Shri. Hariharan बिाम/ ITO WD 26(2)(1),Mumbai Ramasubramanian, A3/603, Nandan v. Prosperra, Baner Road, Baner Pune-411045 स्थायी ऱेखा सं./ PAN : AAYPR3648H (अपीऱाथी /Appellant) (प्रत्यथी / Respondent) .. Assessee by: Shri. B.N. Rao, AR Revenue by : Shri. Manoj Kumar Singh, DR सुनवाई की तारीख /Date of Hearing : 14.08.2018 घोषणा की तारीख /Date of Pronouncement : 29.08.2018 आदेश / O R D E R

PER RAMIT KOCHAR, Accountant Member

raised by the assessee in the memo of appeal filed with the Income-Tax Appellate Tribunal, Mumbai (hereinafter called “the tribunal”) read as under:- “1. The ld. Commissioner of Income Tax (Appeals) erred in restricting the benefits of deduction under section 54 of the Act to the extent of investment in new assets only upto the due date of filing of Return under section 139(1) of the Act being Rs, 33,56,398/- and not granting relief on Rs. 6,20,883/- which was invested subsequently. The appellant craves leave to add to, alter, amend, modify, vary or delete the ground taken above.”

3. The assessee is working with TNT India Private Limited and earned salary income during the assessment year under consideration. The assessee sold one property being residential flat at Thane on 30.06.2010 for sale consideration of Rs. 80,00,000/- . The assessee has earned long term capital gains of Rs. 39,77,281/- and thereafter the assessee claimed deduction u/s 54 of the 1961 Act to the tune of Rs. 39,77,281/- with respect to the investment made in new residential flat at Bangalore which was booked by the assessee on 14.10.2010. On being asked by the AO during the course of assessment proceedings u/s 143(3) r.w.s. 143(2) of the 1961 Act , the assessee submitted that the assessee had invested in new residential flat with builders M/s DLF in their township in Bangalore. The apartment buyers agreement was entered into between DLF and the assessee on 22.08.2010. The provisional allotment letter was issued by the Builder in favour of the assessee on 22.08.2010. The AO did not accepted the contentions of the assessee and denied the deduction u/s 54 of the 1961 Act as the assessee was only provisionally allotted the flat , no formal agreement was executed by the assessee with the builder and no other legal documents such as registered agreement/allotment letter could be produced by the assessee to show that there was creation and transfer of rights to the assessee by the builder even after the expiry of three years from the sale of flat. The AO observed that even the provisional allotment letter held by the assessee is un-registered and the assessee did not become the owner of the said residential flat. In the opinion of the AO, the assessee did not become the owner of the said flat nor any substantial payments were made by the assessee towards the said flat during the year under consideration . The AO passed assessment order dated 25-03-2014 u/s 143(3) of the 1961 Act denying the deduction u/s 54 of the 1961 Act.

4. The assessee being aggrieved by the assessment order passed by the AO u/s 143(3) of the 1961 Act denying deduction u/s 54 of the 1961 Act carried the matter before learned CIT(A) by filing first appeal. The learned CIT(A) observed that the assessee was allotted apartment being flat no. 4 , 17th Floor, B4 Block , 1 Parking and super area 1225 square feet for a total consideration of Rs. 43,05,250/- . The assessee had claimed that total amount paid till the date of filing of return of income with Revenue towards the said flat was Rs. 33,56,398/- . The learned CIT(A) allowed the deduction u/s 54 of the 1961 Act by holding that the said provision does not mandate registered documents and since the assessee was allotted flat on 22-08-2010 by DLF for which it holds provisional allotment letter dated 22-08-2010 is a sufficient compliance of mandate of Section 54 of the 1961 Act. The learned CIT(A) relied upon decision of ITAT, Mumbai in the case of Hasmukh N. Gala v ITO reported in(2017) 173 TTJ 507(Mum-trib) to hold that if payment of advance is made to builder even if construction is not completed and title does not pass within time limit stipulated u/s 54 of the 1961 Act will be a sufficient compliance to constitute purchase for the purposes of granting deduction u/s 54 of the 1961 Act. The learned CIT(A) also relied upon decision of Hon’ble Bombay High Court in the case of Humayun Suleman Merchant v. CCIT in of 2002 , judgment dated 18-08-2016 reported in (2016) 387 ITR 421(Bom.) to contend that the assessee is entitled to benefit of investment in new residential house u/s 54 of the 1961 Act till the date of filing of return of income with the Revenue , which led learned CIT(A) to direct the AO to grant deduction u/s 54 of the 1961 Act to the tune of Rs. 33,56,398/-, vide appellate orders dated 25-01-2017.

5. Now aggrieved by the decision of learned CIT(A) in restricting deduction u/s 54 of the 1961 Act to the tune of Rs. 33,56,398/- as against the claim of the assessee for deduction u/s 54 of the 1961 Act to the tune of Rs. 39,77,281/-, the assessee is in appeal before the tribunal.

6. The brief question for determination before the tribunal is as to the quantum of amount to be allowed as deduction u/s. 54 of the Act as the learned DR could not bring on record that Revenue has come in appeal before the tribunal against the part relief granted by learned CIT(A). The AO has disallowed the entire claim of the assessee of deduction u/s 54 of the 1961 Act while Ld. CTI(A) has allowed deduction u/s. 54 of the Act to the tune of Rs. 33,56,398/- as against the claim of the assessee for deduction u/s 54 of the 1961 Act to the tune of Rs. 39,77,281/- . The assessee has sold its residential flat at Thane on 30.06.2010 for Rs. 80,00,000/- and made investments in new residential apartment being constructed by DLF at Bangalore bearing flat no. 4, 17th Floor, B4 Block, 1 parking and super area 1225 square feet . The said new residential flat was provisionally allotted by DLF in favour of the assessee for Rs. 43,05,250/- on 22- 08-2010. The AO disallowed the entire benefit of deduction u/s 54 of the 1961 Act as claimed by the assessee mainly on the grounds that the assessee holds only provisional allotment letter issued by DLF which is an unregistered document and no title of the property has passed on to the assessee with this unregistered provisional allotment letter , while the learned CIT(A) held that there is no requirement of having registered documents to get deduction u/s 54 of the 1961 Act and benefit of investment actually made in new residential flat till the date of filing of the return of income has to be allowed keeping in view decision of Hon’ble Bombay High Court in the case of Humayun Suleman Merchant (supra) , which led to the allowance of deduction u/s. 54 of the Act, to the tune of Rs. 33,56,398/- by learned CIT(A) , while the balance amount of deduction to the tune of Rs. 6,20,883/- as was claimed by the assessee was disallowed by ld CIT(A) . It is undisputed that the assessee has not invested any amount in the notified bank account designated under capital gain scheme as stipulated u/s. 54 of the 1961 Act , while the investments were made in the new residential flat at Bangalore as claimed by the Ld. Counsel for the assessee till the date of filing of return of income, as under:-

23.08.2010 Rs. 2,56,450/- 09.09.2010 Rs. 6,00,000/- ( cost of flat including floor rise, parking –Rs 5,65,780 + service tax Rs. 36,058/-) 16.09.2010 Rs. 30,98,083.00 ( HDFC Loan disbursement)

Thus, apart from above investments in new residential flat , further investment were claimed to be made in the said new flat to the tune of Rs. 1.76 lakh on 01.10.2013. It was prayed that the deduction u/s 54 of the 1961 Act be allowed of the entire amount so paid towards the new flat even if the said amount is paid post filing of return of income on 31.07.2011 The Ld. Counsel for the assessee submitted that Ld. CIT(A) relied upon the decision of Hon’ble Bombay High Court in the case of Humayun Suleman Merchant (Supra) to disallow investment made in the said residential flat post filling of return of income with Revenue on 31-07-2011 . It is admitted by Ld. Counsel for the assessee that deduction u/s 54 of the 1961 Act wrt payment of Rs. 6.00 lakh made on 09.09.2010 was not allowed by Ld. CIT(A) as the assessee itself did not made the claim before the Ld. CIT(A) which was inadvertently omitted to be claimed u/s. 54 of the Act. The Ld. DR on the other hand relied upon the decision of Ld. CIT(A) and submitted that if assessee has not claimed said deduction before the authorities below and the claim is now being made before the tribunal for the first time , it need proper verification and authentication by the AO before allowing the said claim in accordance with law. We have considered rival contention and perused the material on record including cited case laws. The facts of the case are elaborately discussed by us in preceding para’s of this order which are not repeated again. The dispute between rival parties is in narrow compass and the Hon’ble Bombay High Court in Humayun Suleman Merchant(supa) has held that even if the assessee has not invested in the notified bank account under capital gain scheme of the bank as mandated u/s 54 of the 1961 Act but still the benefit of deduction u/s 54 of the 1961 Act cannot be denied for investments made in new residential flat till the date of filing of return of income by the assessee with Revenue. Thus in our considered view keeping in view decision of Hon’ble jurisdictional High Court in the case of Humayun Suleman Merchant(supra) and also keeping in view the fact the assessee has not deposited the amount in notified bank account maintained under capital gain bank account scheme as provided u/s 54 of the 1961 Act before the due date of furnishing of return of income, deduction of Rs. 1.76 lakh on account of investment made in said residential flat being constructed by DLF at Bangalore cannot be allowed to the assessee u/s 54 of the 1961 Act as the said payment of Rs.1.76 lacs was made on 01-10-2013 while return of income was filed by the assessee on 31.07.2011. However, so far as investments of Rs. 6.00 lakh made on 09.09.2010 is concerned, the same is to be allowed by AO in accordance with law after verification of the records and the matter need to be set aside and restored to the file of the AO for necessary verifications of the claim of the assessee for deduction u/s 54 of the 1961 Act wrt this payment of Rs. 6 lacs. Hence , the appeal of the assessee is partly allowed for statistical purposes wherein matter is set aside and restored to the file of the AO for necessary verification and adjudication as indicated above. Needless to say that proper and adequate opportunity of being heard shall be provided by the AO to the assessee in accordance with principles of natural justice in accordance with law. The AO shall admit all necessary evidences filed by the assessee in support of its contention which shall be adjudicated by the AO on merits in accordance with law. We order accordingly.